In an attempt to keep losses at a minimum, businesses have started letting go of their employees. For businesses that gave priority to their staff, the PPP loan saved both their reputation and the lives of these workers.

The PPP loan or Paycheck Protection Program is a loan to help businesses keep their employees on a payroll. This means their business can keep running, especially if it requires more manpower. 

Paycheck Protection Program (PPP) Loan Forgiveness

A few information regarding PPP loans:

• The interest rate for PPP loans is 1%
• The loan matures for 5 years
• Doesn’t require a collateral
• A six-month deferment is standard
• The SBA doesn’t require borrowers to pay additional fees

A lot of businesses have been forced to close down due to the insufficiency of the PPP loan. Although it was given out in two batches, the pandemic lasted longer than funds could be disbursed. The US government has given more than $780 billion to over 10 million borrowers. The second draw (or second batch) for the PPP loan had a set budget of $292 billion. 

Banks are as stuck as the applicants for the PPP loan. Financial institution Fountainhead Commercial Capital reports 60,000 pending applications. The PPP loans go through a web portal. The website has been closed before the estimated May 31st deadline. 

The PPP loan was part of the CARES Act and has received changes to help small businesses thrive. Newly-elected President Biden directed the SBA to make changes to the priority. 

The SBA targeted businesses that have revenue losses significant enough to merit financial aid. President Biden also was partly responsible for the extension, having signed the PPP Extension Act of 2021. 

The CARES Act also includes provisions for the maturity of the loan. For businesses who were able to get a PPP loan prior to June 5 can be paid up to two years, while the ones after said date mature in five years.

Small businesses are safe since the government and lenders are not going to charge any additional fees.

How and Who Gets A PPP Loan

To get a PPP loan, SBA will be disbursing the allocated funds via participating financial institutions. These include Certified Development Companies and Microlenders. 

They also disburse through Minority Depository Institutions and Community Development Financial institutions. SBA announced they will continue giving out these loans until May 31st or until the funds are exhausted. Unfortunately, the latter happened sooner than the deadline.

So who gets a PPP loan?

For the first and secondary draws for the PPP loan, qualified businesses include sole proprietorship and those working as independent contractors. Self-employed persons are also on the same line as the previous two categories mentioned. 

Businesses with more than 500 employees can also apply for a PPP loan, or if the business deals with food and accommodation services. If this business has more than one location, they’re also qualified.

There are individuals who may have skipped getting a loan, or the money received was incorrectly calculated. In such cases, these businesses or individuals can reapply for a first draw, provided they returned their loan last December 2020. 

Last month, SBA offered loans for theater owners and operators for live venues. Applications from these types of businesses will be approved based on who had the greatest loss in revenues.

SBA also announced previously their intent to focus on certain groups such as women-owned and operated businesses, individuals classified as marginally poor, and people who served in the military.

Is SBA still issuing loans?

Yes. Applications sent in for the second draw can still expect loans. However, SBA is no longer accepting new applications. SBA also made sure restaurants still keep running. Biden’s $1.9T stimulus package included a dedicated $28.6B for the Restaurant Revitalization Fund.

While SBA did announce fund exhaustion for the second draw, they also said they may be able to forgive loans if it wasn’t from either first or second draws. This is meant for businesses that received economic injury disaster loans.

Loan Forgiveness

For individuals and businesses who had loans from the first and second draws, there are policies that state a loan may be forgiven. Individuals need to submit a form to the lender that indicates they used a majority of the loan to maintain employee headcount. SBA-certified lenders will then review the application within sixty days. Read more about Loan Forgiveness here.

Alternatives to PPP Loans

There are those unfortunate enough not to get PPP loans. These may be due to a variety of reasons, but the best thing they can do next is to look for alternatives. Some businesses may be just outside SBA’s criteria, hence, they’re not qualified for the PPP loans.

The first alternative to PPP loans is an Economic Injury Disaster Loan. The COVID pandemic qualifies as a natural disaster and businesses with over 500 employees can avail of an EIDL. 

The only difference between a PPP loan and an EIDL is that forgiveness doesn’t apply to the latter. An EIDL will also require collateral that usually should be $25,000 or more. SBA made some changes regarding forgiveness for EIDLs.

Standard 7(a) loans have the highest amount available for use to businesses. These loans can reach up to five million dollars. Express loans also provide working capital, with amounts reaching $350,000.