How Does The Payroll Protection Program Work?

Paycheck Protection Program

Timing:

First Come, First Serve – since there is a set amount of funds available at this time, we encourage you to apply soon.
Since the program is new, banks are working to understand the program as quickly as everyone else. Expect a small delay from banks to enter the program.

How does the Paycheck Protection Program (PPP) Work?

PPP is a Forgivable Loan – Although this aid is shaped as a “loan” from the Small Business Administration (SBA), if executed correctly, the full principal amount you receive may qualify for total loan forgiveness. The forgivable feature of this loan treats it more as a Grant.
The proceeds of such loans may be used to pay a variety of costs, including:
Payroll costs
Group health insurance premiums and other healthcare costs
Salaries and/or commissions
Rent
Mortgage interest (excluding amounts pre-paid)
Utilities
Other business interest incurred prior to February 15, 2020

Amount You Can Apply For (basic formula below):

Calculate Monthly Payroll. First find Annual Payroll Benefits for all employees. Then divide the Annual number by 12.
The max salary you can use for this formula is $100,000.
Multiply by 2.5 = Amount ($) of Loan you Qualify For

Forgiveness Criteria:

At least 75 percent of the PPP loan proceeds shall be used for Payroll Costs.
Maintain Full Workforce for 8 Weeks – after your loan proceeds have been paid to you, you will need to continue to keep up full payroll costs, covered mortgage payments or rent, and covered utility payments during the eight week period after loan disbursement. Once proof is shown to the lender, you should qualify for full loan forgiveness, assuming you’ve met all criteria.
Even if you do not qualify for the forgiveness feature, the loan terms are very favorable.
Terms – 1% Loan, 2-yr payback. 6-mo’s deferral on your first payment

Key Qualifications:

Small Businesses (or Sole Proprietors) with less than 500 employees. This also includes “Independent Contractor Workers” or anyone who files a Schedule C on their tax return.
Must anticipate “Economic Uncertainty” in your business’s future. This is an intentionally broad choice of phrasing, encouraging almost every business owner to apply.
Feb. 15, 2020 – you must have been in business before February 15, 2020, in order to apply.
Proof of Payroll Costs – to ensure you’re borrowing an appropriate amount, lenders will review previous payroll records.

How to Apply:

The application period for this program technically opened Friday, April 3, but the infrastructure for most banks is not in place yet.
More explicitly, many major banks are not currently accepting applications yet. As banking guidelines become clearer, we expect many banks to join the program and begin accepting applications.
Banks that are ready to accept applications seem to be giving priority to existing business clients in most cases. This means they want you to have an existing business account, business loan, or some other business banking product.
If you have an existing business banking relationship, we strongly suggest you visit your bank or credit union’s website to see if they’re accepting applications. Perhaps no surprise, all processes will likely be initiated online.