What is the PPP program?
PPP loans are offered through the US Small Business Administration (SBA) as part of the Coronavirus Aid, Relief, and Security (CARES) Act. In effect since March 2020, the objective of this payment protection program is to help finance the expenses of independent workers, small businesses and non-profit organizations that have had economic difficulties due to the COVID-19 pandemic. A first round of PPP loans was made in 2020 during the first months of the health crisis. However, on January 11, 2021, the SBA summarized the program, setting March 31, 2021 as the deadline to apply for your PPP loan.
What is the PPP program for? The government recognizes that as a result of the pandemic significant economic difficulties have been generated, and has launched this PPP program to help you cover the expenses of your company or business. For example: if you need help paying your employees’ payroll, that’s what the PPP program is for. Or if you need to pay rent or mortgage for your business, you can use this loan for that too. If you have had to offer additional measures to your workers so that they can protect themselves from COVID-19, those expenses also count.
Who is eligible for PPP loans?
PPP loans are intended to assist individuals (self-employed workers) and specific businesses. Eligible individuals meet the requirements below.
PPP Program Requirements: Self Employed
- Sole proprietors, also called sole proprietorship , that is to say that it has only one owner and it is he who takes care of the business, which can belong to different labor branches, such as accounting , gardening or medical assistance.
- Independent contractors , such as doctors, dentists, veterinarians, or attorneys; that is, those that provide services that cannot be directed and controlled by the person who hires them.
- Self-employed people, also called freelancers, such as graphic designers, architects or writers who do not belong to any company and can work temporarily on various projects.
- Gig economy workers , that is, freelancers who are paid for very short-term jobs, such as delivering food or providing transportation service.
PPP Program Requirements: Businesses
- Small businesses that meet SBA size standards .
- Businesses, nonprofits, veterans’ organizations, or tribal businesses (businesses owned by Native Americans) that have fewer than 500 employees. If any of them have more than 500 employees, they may still be eligible if they meet the SBA’s size standards.
- Service and accommodation companies that have more than one physical location and have less than 500 employees per location.
How do PPP loans work?
PPP loans have significant advantages over other types of personal and business loans, such as a lower-than-normal interest rate, a five-year maturity, or waiving fees from lenders.
PPP loans work as follows:
- They have an interest rate of 1%, something very positive compared to other types of loans , which usually have an annual interest rate above 4%.
- Payment Protection Program loans made after June 5, 2020 have a five-year maturity.
- It is not necessary to present endorsements or personal guarantees.
- Neither the government nor the lenders will charge you any fees.
- Loan payments will be deferred for forgiveness applicants until the SBA remits the amount of the loan to be forgiven.
- If a borrower does not apply for loan forgiveness, payments will be deferred to ten months after the end of the covered time period for loan forgiveness, either 8 or 24 weeks.
How much can you borrow with the PPP program?
Borrowers will be able to request up to 2.5 times their monthly payroll expenses, based on their 2019 or 2020 tax information, with $10 million being the maximum amount they can request.
The way to calculate the PPP loan amount varies depending on the type of borrower. However, we can summarize the types of expenses that you can include as part of your payroll.
Types of expenses for the PPP program: Self-employed
- Net income
Types of expenses for the PPP program: Businesses
- Salaries, commissions and tips of your employees;
- Subsidies for dismissal or separation;
- retirement payments;
- Vacation, maternity or sick pay;
- State or local taxes assessed on employee compensation.
For detailed information on how to calculate your loan amount, we recommend that you consult the following SBA document .
What expenses are considered authorized?
Most PPP loans must be used to cover payroll financing expenses, but they can also be used for the following expenses:
- Mortgage, rent, utilities;
- Protection of workers related to COVID-19;
- For uninsured property damage caused by looting or vandalism during the year 2020;
- From suppliers to operations.
How does PPP loan forgiveness work?
Borrowers may be eligible for PPP loan forgiveness if, within 8 to 24 weeks of receiving their loan, they meet the following requirements:
Manages to maintain employment and compensation levels;
60% of profits are used to cover payroll costs;
Loan proceeds are used to cover payroll costs and other eligible expenses such as mortgage, rent, and business utilities.
How can you apply for a PPP loan?
If you or your company is eligible to receive a PPP loan, you must submit your application before March 31, 2021. To do so, you must choose a lender and submit the required documentation, as explained below.
Choose an authorized loan service
PPP loans will be made by SBA-approved lenders, including a wide variety of banks and credit unions. Find out which lenders are closest to your area to apply for financing. One option for contacting them is Lender Match , which the SBA makes available to you.
What documents do you need?
If you want to start preparing your PPP loan application, a good option is to download the sample application in Spanish. Take into account that the procedure with your lender must be in English.
Some of the documents that you may be asked to apply for your PPP loan are listed below.
Documents for the PPP Program: Independent Workers
- Proof that your business was in operation before February 15, 2020, the start date of the pandemic;
- 2019 tax return;
- Bank statement.
Documents for the PPP program: Companies
- IRS Form 940 (for 2019 and 2020);
- IRS Form 941 (for 2019 and 2020);
- 2019 Business Taxes;
- payroll reports;
- company formation documents;
- Bank statements 2019 and 2020.
Second PPP loans
With the resumption of the PPP program in 2021, there is the possibility that eligible borrowers who received a first loan in 2020 may be able to apply for a second PPP loan under the same general terms as their first loan .
The maximum amount of a second PPP loan is 2.5 times the monthly average of 2019 or 2020 payroll costs, only this time the maximum amount is $2 million. For borrowers in the Housing and Food Services sector, the maximum amount of your second loan can be 3.5 times the average monthly 2019 or 2020 payroll costs, not to exceed $2 million.