PPP LOANS in 2023 – A Recap and What’s Next
What are PPP loans?
PPP stands for Paycheck Protection Program. It was introduced to help small businesses cope with the Covid-19 pandemic. The US government came up with this program in the spring of 2020. The PPP loan was meant to be a helping hand for small businesses, to help them recover from losses. They could also use the loan for payrolls.
According to statistics, the top three PPP lenders are as follows:
- JPMorgan Chase bank
- Bank of America
- PNC Bank
Also, the top three industries to receive PPP loans are as follows:
- Health care
- Scientific and technical services
The average approved loan amount during all rounds of PPP was nearly $1,00,000.
Why does the government issue PPP loans
The Covid-19 Pandemic was a big hit to the world economy. Some of the big and medium businesses were able to survive the hit due to their preparedness and flexibility. However, most of the small businesses suffered heavy losses.
To help those small businesses, the US government started the Paycheck Protection Program as a part of the CAREs act. There were two rounds where funding of about $300 billion was provided in each round. There was also a third round of funding which we will look at later.
PPP funds were made available for small businesses to be able to provide “paychecks” to their employees using the PPP loan to cover payroll expenses. The US government understand the challenges small businesses were facing with covering average monthly payroll costs.
Are PPP loans available in 2023
PPP loans are no longer available. The last PPP draw was in May 2021. However, existing borrowers might still be eligible for full loan forgiveness(principal and interest payments) through a loan forgiveness application. You can read on for insights into how PPP loans work.
How do PPP loans work
In the first two rounds of PPP funding, a lot of small and medium businesses got funding from the US government to help sustain their losses. After the first two, there was a third and final round of funding. However, in this round, three funding categories were introduced to split funds accordingly. Let’s take a look at them.
These were the businesses that did not receive any funding the first time ppp loans were disbursed. The reason for not receiving funding might be that those businesses were not eligible at that time, they simply missed applying, or perhaps they lacked proper legal or accounting advice. These first-draw loans in the third round were a chance for them to apply for funding.
Second draw PPP loans
This was for businesses that wanted a second ppp loan to sustain themselves. Some businesses acquired a previous PPP loan during the first two rounds but that wasn’t enough. This was their chance to apply for a second PPP loan. However, there was a cap for a second draw PPP loan at a $2 million maximum loan amount as most of the funding was concentrated toward first draws. Previous PPP loan recipients had the opportunity for a second chance.
There were also cases like some businesses that had already returned their first PPP loan(most borrowers did not) or did not receive the full amount they applied for. This category was made to handle such cases and their further requirements.
Terms, conditions, and eligibility for a PPP loan
Although minimal, there were a few conditions for those who received a ppp loan. Also, not everyone was eligible for PPP loans, there were eligibility criteria the businesses had to meet. The terms and conditions for PPP loans were as follows:
- There was a fixed 1% interest rate on all PPP loans
- The loan would mature in two years if it was given before 5th June 2020. The loans given after that would mature in five years
- No collateral or personal guarantee was required to avail the loan
- Loans were forgivable
- Amount received under PPP loans was not taxable
- It was guaranteed that the government or lenders would not be able to charge small businesses any fees.
PPP loans with these conditions were only available to businesses that matched the following criteria:
- The business was in operation on or before 15th Feb 2020
- The business must be under one of the following categories:
- Small-medium businesses that have less than 500 employees.
- Accommodation services like hotels that have less than 500 employees
- Food businesses like restaurants and cafes with less than 500 employees
- Self-employed individuals
- Solo proprietors of limited companies
- Tax-exempted Non-profit organization
- Independent contractors
- Gig workers
- Housing co-operatives with less than 300 workers
- News companies with less than 500 employees
- Independent franchises
In addition to the above, there were a few more requirements to be eligible for the second draw loan:
- All businesses applying must have less than 300 employees
- The businesses must be able to prove a drop of 25% in their revenue in one quarter of 2020
Only businesses that met the aforementioned criteria were given a PPP loan.
Do you need to repay your PPP loan
If you are wondering if you need to repay these loans, the answer can be both yes and no. As mentioned in the terms and conditions, these loans are forgivable. However, to qualify for forgiveness you need to keep an impeccable track of how you spent the funding.
PPP loan forgiveness terms
You are eligible for loan forgiveness if, in the period of 8-24 weeks after you received the loan amount, you comply with the following:
- Looking after your staff. This means, maintaining their compensation levels and retaining all staff.
- You can prove that your loan amount was spent on payroll and business expenses
- You can prove that you spent at least 60% of loans only on payroll purposes
You can apply for forgiveness from your lender once the complete loan amount has been used. However, you have to apply before your loan matures. Keep a note that if you applied before 5th June 2020, your maturity period would be two years. Conversely, if you applied after that date, your maturity period would be five years.
You would also be informed about a cover period for your loan. For most approved loans, the cover period would be between 8-24 weeks after the loan amount is received. If you do not start the forgiveness process within ten months of your cover period, you will have to repay your loan at 1% interest to the lender.
Interesting facts on PPP loan
These PPP loans were a great solution to help small businesses curb their losses during difficult times. There are some interesting facts that were recorded during the period PPP loans were being disbursed.
Largest PPP amount
The largest PPP loan amount given to applicants was $10 million.
Total amount of PPP loans issued till date
The total number of PPP loans approved is 5,212,128. The total amount that was disbursed in these loans comes up to a little more than $525,000,000,000.
Like every other program, PPP was not immune to fraud. It is reported that shady business owners and fraudsters applied for more than $100 billion in funds. It is also reported that nearly $76 billion in funds were approved.
What loans are available now that PPP has closed?
There are number of options for securing the working capital that your business needs. Depending on how much money you need options include business lines of credit, factoring, purchase order finance, and term loans. If you need working capital today please contact a representative that can help you. The form to contact us can be found here.
Q. What counts as payroll costs?
A. The following is counted as payroll costs:
- Compensation to employees in the form of wages, commission, and salary.
- Payment for vacation, family, medical, or sick leave.
- Allowance for separation or dismissal.
- Payment for employee benefits like group health coverage.
- Payment of taxes assessed on employee compensation
Q. Will my name, business name, or other information be disclosed as a PPP borrower?
A. No. None of your information will be disclosed by any lender for being a PPP borrower.
Q. Can I apply for a PPP loan with multiple lenders?
A. It is not recommended to apply with multiple lenders as this might affect your loan approval or forgiveness in the future.
Q. Who counts as an employee of the business
A. The people working part-time, full-time, or hourly for who you file the W-2 are counted as employees. Independent contractors and employees for who you file a 1099 are not counted as employees.
Q. How is my PPP loan amount calculated?
A. The SBA has issued specific instructions on how to calculate the loan amount for an applicant. You can find the instructions here.
Q. How long does the PPP loan application review process take?
A. The processing time depends on the volume of applications, SBA systems, and the completeness of your documentation during application.
Q. Can I cancel my PPP application?
A. You are allowed to cancel your application until it is verified.