Paycheck Protection Program (PPP) loans were loans that were initiated by the federal government during the COVID-19 pandemic. These loans were meant to assist small businesses and are administered by the Small Business Association (SBA). Here are four facts about PPP loans.
If you wanted to submit a PPP loan application, you first needed to make sure you were eligible for a PPP loan. There were several requirements you needed to meet to be considered eligible. As long as you had 500 employees or fewer, your organization was considered a small business by the standards of the loan program. Your organization could be for-profit or nonprofit. Those who were self-employed, independent contractors or running veterans associations or tribal businesses were also eligible.
2. How Small Businesses Applied
Applications needed to be submitted via officially associated lenders. These included credit unions, banks or depository institutions that are federally insured, Farm Credit Systems or SBA lenders. Applicants needed to check with their financial institutions or the list of enrolled lenders on SBA’s website ahead of time to make sure their applications could be processed.
3. Loan Forgiveness
The primary use of a PPP loan was meant to be coverage for operations costs of your small business. These costs included utility and rent payments, payroll and staffing costs and mortgage payments. This type of loan was forgiven if you used all the money for these approved costs. If you used the money for different things, or if you reduced the size of your staff or their wages, you would need to repay parts of your loan. Like other loans, PPP loans allowed recipients to apply for loan forgiveness. In a small business’s application, the applicant would have had to verify the organization’s payroll information and any other payments made using the loan. All documents submitted when applying for forgiveness needed to be reviewed for discrepancies or falsehoods and certified as correct and true before the application could be approved.
4. First and Second Draws
There were two different PPP loans applicants could have received: first draw and second draw. The first draw was what you would apply for if you had never applied for a PPP loan before. A first-time applicant would have to gather all information and documentation and build the application from scratch. The terms for this loan were the same for all approved applicants. The second draw was open to organizations that had applied for and received a PPP loan previously. Organizations could apply for a second draw PPP loan if they were able to prove they had been approved for a first draw and had used the entirety of the loan amount for the uses authorized by the SBA.
These loans were part of a temporary measure to assist small businesses during the COVID-19 Pandemic. Funding has currently run out, but if you or someone you know were approved for a PPP loan, remember to use the loan for the appropriate costs and make any necessary loan payments on time if you need to use the money for other costs.