The coronavirus pandemic of 2020 is a wakeup call for many small business owners. Businesses who felt a false sense of security with ‘business as usual’ suddenly found themselves without the fuel that keeps companies thriving: customers.
Enter the Paycheck Protection Program. The Paycheck Protection Program (PPP) is a national loan program designed to offer a lifeline to struggling small businesses.
If you’re applying to receive or already have a PPP loan, here’s what you need to know.
What is the Paycheck Protection Program?
The Paycheck Protection Program offers relief to businesses throughout the coronavirus pandemic and beyond. The funds are managed by private banks but come from the federal government.
The federal government approved the release of funds under the CARES Act, or Coronavirus Aid, Relief, and Economic Security Act. The $2.2 trillion emergency fund was released in Spring 2020 to help keep the economy moving during the economic shutdown.
The government released the funds to private companies directly, but much of the funding went to the Small Business Administration. The SBA was tasked with deciding which businesses would receive loans and put together criteria for how the money could be used.
But the PPP loan was different from the Disaster Recovery Loan offered by the SBA. You can’t simply go to the SBA website and apply for the loan.
If you want a PPP loan, you have to find a lender who received funding from the SBA for this specific purpose. Many large banks received funding, but there was, and still is, no guarantee.
Some third-party payment services like Square and PayPal launched their own system for applying for PPP loans.
What’s the Catch with a PPP Loan?
A PPP loan is very different from other loans. It’s like an SBA loan in that the terms are very generous relative to other types of loans.
But this is where the comparison ends. Traditional loans ask that borrowers have a minimum credit score and financial history.
One unique thing about PPP loans is that they aren’t approved based on your financial history. There are a few ways you can be disqualified, however.
Take a look at this list of PPP loan disqualifiers.
SBA Loan Delinquency
One easy way to get a denial on a PPP loan is to default on another SBA loan you already have. Borrowers with existing SBA loans in bad standing should resolve their current loan balance before applying for a PPP loan.
This applies whether you’re a few months behind on payments or in actual default. If you’re in the default category, it might be tough to qualify even after you’ve brought your account balance current.
If you or your business is bankrupt, you won’t qualify for the PPP loan. It’s a move that keeps many businesses away from the funds they need but also maintains a little financial integrity for the courts.
Since you’ve already proven trouble paying debt, you can’t jump into another loan since you’ve proven your finances aren’t adequate.
You’re a New Business
Your business must be older than February 15, 2020 in order to qualify for the Paycheck Protection Program. If you opened your business later than this date, you’ll have to find alternative means of paying your staff.
Owner Involved in Justice System
Here’s a controversial qualifier of the PPP loan. No one with more than 20 percent ownership that is involved with the justice system can get funding from the PPP loan.
This includes anyone with a felony who is on parole, probation or currently incarcerated. This is an issue for many people of color who might suffer higher conviction rates.
Organizations like Gideon’s Promise help people who can’t afford representation avoid false convictions. Certain types of bias leads to false arrests or testimonies against black men.
If you’re trying to get on your feet after incarceration, ppp loan denial can put you in a tough position during the lockdown. It means you won’t have the same opportunities as other Americans even if you currently provide jobs and contribute to the economy.
Old news is old news. Hopefully the new rollout of funding supports all Americans.
What Can I Use PPP Loans to Cover?
Paycheck Protection Program funding must be used for specific expenses. While you can use the money as working capital, you should focus on paying your employees.
The loan aims to keep the nation’s workers on payroll to lessen the strain on unemployment nationwide. With millions of Americans at risk of losing their income, businesses needed some form of protection to keep everyone employed.
The loan amount covers 2.5 times your payroll amount. The payroll amount is the average you’ve paid employees over the last 18 months.
One of the biggest advantages of the Paycheck Protection Program is that the loan is forgivable. You have to use the loan funds correctly in order to qualify.
Every applicant seeking loan forgiveness needs to complete an application after their loan term ends. It’s not an automatic process but every applicant receives a response for submitting a forgiveness application.
If your loan is forgiven, you won’t need to repay the debt.
PPP Loan Guidelines
The Paycheck Protection Program is under a lot of scrutiny for excluding many businesses in need. But even with the controversy, the loan helped many employees keep their income coming in during the shutdown.
This was a major benefit when the shutdown happened in Spring 2020. Now, businesses must continue using the funds correctly in order to ensure they qualify for loan forgiveness.
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