Understanding the financial aid provided through PPP loans

The Coronavirus Aid, Relief, and Economic Security Act offers special financial relief to support businesses that were affected during the pandemic. Under this scheme, the Paycheck Protection Program (PPP) provides forgivable loans worth $10 million to small businesses. In layman’s terms, this financial aid can be used to pay for certain business expenses and cover any cash crunch.

Employers also need not worry about repaying the amount once the loan is eligible for forgiveness. Here is a brief overview of the scheme.

Qualification criteria
Depending on the draw of the loan (first or second), the following businesses and entities may qualify for a PPP loan.

• Small business with 500 or fewer employees operating as a corporation, LLC, private nonprofit, veteran group, tribal business, or any faith-based organization.
• Independent contractors or sole proprietors who qualify as self-employed individuals under the IRS schedule C.
• Food and hospitality businesseses that qualify with the NAICS 72 code employing less than 500 employees at specified locations.

Note that businesses involved in investments, speculations, lending, political and policy lobbying, gambling interests, household employments, and passive income generation cannot avail PPP loans under any circumstances.

Eligible expenses covered under a PPP loan
Small businesses that qualify for a PPP loan can use the loan disbursement to cover their employee’s payroll, establishment rent, utilities, any mortgage interest, and even insurance premiums.

• Payroll costs
  A PPP loan can be used to pay the employee salaries, any commission for work done, compensation for performance tasks, additional bonus payments, and even cover hazard pay for specialized jobs. Employers providing retirement benefits, group health insurance policies, and additional health care benefits can also use the loan amount to pay for their premiums and benefits on an individual basis.

The loan can also cover any taxes that are incurred through the state or local authorities for cash compensations paid to the employees. Payroll compensation does not cover employees drawing higher salaries, payments made to employees residing out of the country, or paying for certain qualified sick leave wages.

• Non-payroll expenses
  Establishment running costs include the monthly rent or long-term lease expenses and any interest on the mortgage taken for running the business. A PPP loan can also be used to pay for electricity, water, gas, telephone, internet, and transportation expenses that are incurred on utilities necessary for maintaining the administration premises.
• Paycheck Payroll Program Loan Forgiveness
  Only authorized and designated spending as per the criteria mentioned will guarantee loan forgiveness at a future date. Employers are permitted to spend 60% of the total disbursed loan toward payroll costs and the balance 40% reserved for eligible non-payroll expenses. There are additional terms and criteria that determine exactly how much of the loan can be forgiven.

How to apply?
You can apply directly on the official website of the U.S. Small Business Administration (SBA) and explore an eligible list of lenders in your immediate location. Use the official lender match tool to source PPP funds from official SBA-backed funding in four simple steps. You just need to provide information about your business, receive emails from eligible lenders, compare the terms, and submit your loan application with the necessary documents.

A business applying for a first draw PPP loan must provide invoices that show their most recent operations. Subsequent second-draw PPP loan applications must be supported by a bank statement that shows a minimum 25% reduction in business revenue.

Top PPP lenders in 2021
Chase, Citibank, Capital One, PayPal, and Wells Fargo rank among the top entities in 2021 to avail PPP loans. Apart from these lenders, local banks have certain qualifying criteria for first and second draw loans. Most local banks require the businesses to be existing clients and be eligible for the loan. Note that the documentation will vary depending on the type of the business and category of loan applied.