Posted by Elliot Kravitz, ATP

Understanding the Paycheck Protection Program: Qualification and How to Apply

Understanding the Paycheck Protection Program: Qualification and How to Apply

The paycheck protection program is a product of the CARES Act. It is available to business owners via institutions like the bank of America. It allows businesses to borrow money and use it to service payroll costs. Such money can be used for health care costs, payroll levies, employee compensation, interest payment on mortgages, utilities, rents, and other debts incurred. The maximum loan amount you can have is $10 million, with a 0.5% interest.

Eligibility Criteria 

Some criteria qualify businesses for PPP loans. The business must be in service as of Mid Feb 2020. The business must have employees, independent contractors who must have been paid salaries.

Self-employed people, independent contractors, and sole proprietorship are qualified for this bonus.

The SBA has a set of employee standards for businesses. Businesses with 500 or fewer employees, however, do qualify.

Even when a business has a presence in more than a single physical location, it can be qualified as long as the total number of employees is below 500. They can also be eligible if they meet the standard size of business based on SBA size.

Loan Forgiveness Program with PPP

As long as the funds are used for the required expenses, the loan can be forgiven. Businesses can qualify for loan forgiveness. This, however, happens based on what they spent on eligible expenses in eight weeks after getting the loan. 

The entire amount paid for payroll in the eight weeks qualifies for forgiveness on disbursing the loan. Hence, expenses like rent, mortgage interest, and utilities can be forgiven.

Some provisions qualify you for forgiveness on the entire amount. This is based on the assumption that you used 75% to service payroll and the rest directed to qualified expenses.

For businesses to qualify, they cannot reduce the wages or salaries of workers. Doing this will reduce the amount that can be forgiven. If employers have downsized, there is a grace of June 30 to resize. 

There is no specific guidance from the SBA on how a business with a small staff or small payroll will limit the amount that can be forgiven. There are, however, various interpretations from law firms and accounting firms.

Under the paycheck protection program as well, the business already with disaster assistance loans can defer payment through December 31. This is automatic as you do not need do anything specific to qualify for this.

Application process: When and How

Small businesses and sole proprietors' can submit their application through commercial banks, which have started since April 3. Other categories like self-employed people, independent contractors, and freelancers can apply by April 10. The program will open through June 30.

There are approved SBA lenders through which borrowers can apply. These are credit unions and commercial banks. You can get more information on approved lenders via the SBA website. It is essential, however, for people to note that to be eligible to apply to some lenders; the business must have a pre-existing business relationship. This might be a previous checking account or loan.

Applicants can also enjoy waivers provided by SBA loan applicants. In other words, there will be waivers for lenders and borrower's fees in addition to prepayment fees. Users can escape the requirement, which specifies that they must have credit elsewhere. Also, the program does not come with requirements for personal guarantees.

In applying to the participating bank, there are sample applications available on the SBA website. With the presence of all relevant documents, the application process should take an estimation of 2 hours. Users might, however, need a couple of days to gather the related documents.

According to the SBA, loan applications for the SBA will be examined the same day. With the COVID-19, however, the number of applications is overwhelming, which is affecting the timely processing of the application.


Small businesses and independent contractors that maintain their workers during the Covid-19 pandemic can enjoy the loan to cushion the effect. This is a lending program that accommodates many without excess bottlenecks.

Employers can enjoy forgiveness if they qualify by not reducing wages and not laying off workers. This can turn the loan to full or partial grants depending on the process. 

Elliot Kravitz, ATP
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