PPP loans are back: Here’s what you need to know
January 20, 2021
January 20, 2021
UPDATE: On March 3, 2021, the SBA released a new application and loan calculation formula for self-employed workers and sole proprietors who file IRS Form 1040 Schedule C. This new formula uses gross income rather than net profit to calculate the loan amount, which could allow those who qualify to receive a larger loan. For more information, read our section about “How much applicants can borrow.”
Between April and August 2020, the Paycheck Protection Program (PPP) distributed $523 billion in forgivable loans to 5.2 million small businesses. Now the program is restarting with $284 billion of funding.
Want to learn more about eligibility, important dates, and the application process? Whether you’re applying for the first time or for a second round, here’s what you need to know.
The PPP provides loans that help businesses keep their workforce employed during the COVID-19 crisis. The program covers up to 24 weeks of payroll costs and qualifying non-payroll costs.
All small businesses are eligible to apply for the PPP, including:
The only stipulation is that your business was operational as of February 15, 2020. Also, applicants must certify that “current economic uncertainty” makes their loan request necessary. It’s also important to note that you cannot receive Unemployment Benefits and a PPP loan at the same time.
The new funding is available to both first-time applicants and returning borrowers. Employers who already took out a loan may be eligible for a second loan. This is known as a “Second Draw” PPP loan.
To be eligible for a second PPP loan, applicants must:
First-time borrowers are eligible for 2.5 times their average monthly payroll cost, up to $10 million. Second-time borrowers are eligible for up to $2 million.
The maximum PPP loan amount that a sole proprietor or self-employed individual can borrow is $20,833 unless the business has other employees.
On March 3, the SBA released a new application and loan calculation formula.
Self-employed workers and sole proprietors who file IRS Form 1040 Schedule C can now list gross income on line 7 of the tax form. Gross income will be used to determine their eligible loan amount. Previously, Schedule C filers listed their net profit from line 31 on the form.
Using gross income rather than net profit could allow qualified borrowers to receive a larger forgivable loan amount.
Most borrowers can apply starting January 19, 2021. The deadline to apply is March 31, 2021.
The loan can be forgiven if certain conditions are met. At least 60 percent of the loan must be used to pay workers, and the rest must be spent on qualifying expenses such as rent, utilities, and mortgage interest payments. The money must be spent between eight and 24 weeks after the loan is funded.
PPP loans are available through many banks, credit unions, and community lenders. If you have an existing banking relationship, ask them if they are a participating lender.
To be matched with a participating PPP lender, visit SBA Lender Match.
No. If you think you might use the money, you should apply. There are no penalties or costs associated with applying. Also, you don’t necessarily have to use the funds if you are approved.
The SBA and Chamber of Commerce have published detailed information about loans and other resources available to small businesses. You can also contact your local SBA approved lender to answer any questions you have.
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