One of the big concerns that coronavirus has left is linked to the global economic crisis (and the rising unemployment rates that’s accompanied it.)

To prevent this situation from affecting United States-based business at the start of the pandemic, the US Small Business Administration (known as SBA) launched something called the Paycheck Protection Program (PPP), which helped companies remain viable in the early days of the pandemic. 

Today we want to tell you how the program worked.

The Paycheck Protection Program (PPP) was intended to provide forgivable loans to small businesses so they could keep employees on their payroll.  

This program was approved as part of the Coronavirus Aid, Relief, and Economic Security (CARES Act) enacted in March 2020 to help individuals and businesses affected by COVID-19 pandemic.

Applications for PPP funding could be filed through a federal Small Business Association lender (SBA), deposit institutions (such as banks), federally insured credit unions, or a participating Farm Credit System institution.  

Who qualified for the program?

Small businesses, sole proprietors, independent contractors, and self-employed individuals were eligible to apply for PPP funding.

(According to the program, a small business was defined as a business that had 500 or fewer employees, including for-profit and nonprofit organizations.)

Program features

  • All small businesses that met the qualification requirements were eligible to apply for the loan.
  • The loans had an interest rate of 1%.
  • No personal guarantees or collateral was required.
  • The loan could be up to 2.5 times of the average monthly payroll cost for 24-weeks. The maximum award amount was capped at $10 million.
  • Loans funded before June 5 had a maturity date of 2 years, while those awarded after that date had a maturity date of 5 years.
  • The loan application was free of charge.
  • The loans could be forgiven if the funds are used for expenses outlined by the program. (We’ll tell you more about this later.)
  • According to the SBA.gov website, loan payments could be deferred for borrowers who applied for loan forgiveness, until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks). 

A loan that could become economic aid

One of the great advantages of this program was that the loan could totally be “forgiven”, if 75% of the money was used for employee payroll and the final 25% was used to pay for services such as mortgage interest and rent.

Another condition for the loan to be forgiven was that the money needed to be spent between 2 and 6 months after it was awarded.

If the employer met all these requirements and retained its employees (and kept them at their pre-pandemic wage levels), the company would have their loan forgiven.

On the other hand, if an organization reduced their workforce or lowered employees’ wages, some, if not all, of an organization’s received PPP funds would need to be repaid.

At the time of application, individuals had to certify that they would spend the funds properly. If it was found that funds were used for matters other than those set out in the program, the company could be accused of fraud.

The requirements for opting for the Paycheck Protection Program varied from state to state– and companies had from April 4 to August 8 to apply.

According to an SBA report, by July of this year there were 4,909,927 approved loans with an average disbursement amount of $105,389 dollars per loan.

If you have a small business that has been affected by COVID-19 and you want to know what other loan programs that may be available to you, we recommend visiting the Small Business Administration (SBA) website

Remember that, before your company applies for any support program, it’s important that you research its features and that you speak with your accountant, CPA or tax professional, to make sure you can benefit from the program.

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