The Pay Check Protection Program is back.
Between April and August, the program distributed $ 523 billion in forgivable government-backed loans to 5.2 million small businesses to help them continue to pay their workers during the economic devastation of the pandemic.
It is now starting again after Congress included $ 284 billion in new funds in the stimulus package approved in December. Crucially, the program will give the most affected companies a chance at a second loan.
PPP 2.0 also makes other changes, including eligibility and limits for some loan sizes. Here’s what you need to know.
Who is eligible?
The new financing is available to both first-time applicants and returning borrowers.
For first-time applicants, most of the original rules apply. A company or non-profit organization should generally have 500 employees or less, although companies in some sectors may qualify with more employees. Applicants must also certify that “the current economic uncertainty makes this loan application necessary” to support their ongoing operations.
More groups are now eligible due to the recent stimulus bill, including nonprofit housing cooperatives, newspapers, broadcasters and local chambers of commerce.
Applicants must be in operation by February 15, 2020 to qualify. Self-employed business owners, including independent contractors, are also eligible for loans, but a rule imposed by the Small Business Administration requires individual companies to make a profit on their 2019 tax return to qualify.
The rules are stricter for those seeking a second loan.
Larger companies are not eligible: applicants for the second loan must have 300 or fewer workers. (Publicly traded companies, political lobbyists and members of Congress are prohibited from receiving a second loan.)
They also have to show a certain level of difficulty: a 25% drop in gross revenues between comparable quarters in 2019 and 2020. They must also show that they used all the money from the first loan in permitted ways.
When can I apply?
Like last year, loans are issued by banks and other creditors. But some creditors have gone ahead.
Most borrowers can sign up from January 19 on what is expected to be thousands of participating lenders, from major banks like JPMorgan Chase and Wells Fargo to fintechs like PayPal and Square.
A small group of community creditors managed to start accepting applications a few days earlier. They include Community Development Financial Institutions, Minority Depositary Institutions and Certified Development Companies – specially designated creditors that focus on underserved populations, including blacks and other minority companies.
Banks and credit unions with $ 1 billion or less in assets can begin accepting applications on January 15.
The deadline for registration is March 31.
How much will I receive?
First-time borrowers are entitled to 2.5 times the average monthly payroll cost, up to $ 10 million. (For sole traders, the calculation is different. They can borrow 2.5 times the monthly profit they reported on their 2019 tax form C).
Loans to second-hand borrowers are limited to $ 2 million. Food and lodging companies, like restaurants and hotels, can borrow 3.5 times the average monthly payroll, but the $ 2 million limit still applies.
Do I have to pay the loan?
Borrowers can have their loan forgiven if they follow the program’s rules.
At least 60% of the loan must be used to pay workers, and the rest must be spent on qualifying expenses. Borrowers can choose how much time they want to spend the money, as long as it is between eight and 24 weeks.
Notably, borrowers do not need to maintain staff numbers and wages at pre-pandemic levels to have their loan forgiven, if they certify that they have had to cut staff to comply with federal guidance on “sanitation, social detachment or any other work or job requirements. customer safety related to Covid-19. ”
Unpardoned loans have an interest rate of 1% and a repayment term that usually lasts five years.
What else can I use the money for?
The other 40% can go to rent, utilities, mortgage interest payments and other expenses.
The new stimulus bill added a few items to the list: payments to suppliers, certain material damages not covered by insurance, safety equipment related to Covid for workers, and the cost of erecting barriers and otherwise changing spaces to comply with safety guidelines. social distancing and other mandated issues.
How do I find a lender?
The best place to start is a bank that you have already used. Last year, many national banks accepted requests only from borrowers they had worked with before.
Most borrowers seeking a second loan will be able to do so through the lender who issued the first loan.
Thousands of community banks and specialized lenders are also participating. The Small Business Administration runs a Lender Match program to connect candidates with willing creditors.
What paperwork do I need to prepare?
More than you might need in the spring.
The exact requirements vary depending on the lender, but applicants generally need copies of their payroll records. Many creditors will also request the company’s 2019 income tax return and documents such as social contract or state company registration certificate.
Those seeking a second loan will need records that show that their sales fell by at least 25% in a quarter of last year. Lenders are not required to gather such evidence before granting a loan of less than $ 150,000, but must obtain it before the loan can be forgiven. Most lenders plan to apply for it during the application process.
How quickly will I receive my money?
In the first round of the program, the Small Business Administration approved creditors’ requests instantly, allowing some loans to be disbursed within hours of the borrower’s request. This time, the agency added more fraud checks, and many creditors have also stepped up their verification. A normal loan takes at least a few days from application to payment.
Will the money run out?
When the program started in April, the money ran out in just 13 days, infuriating candidates who were excluded. Congress quickly allocated more, which proved to be sufficient: when the program ended in August, more than $ 120 billion was not spent.
This time, Treasury Department officials believe, the $ 284 billion will be enough to finance all eligible applications.