The government COVID relief options, while helpful, are a lot to navigate. The rules seem to change daily—use this form, no, that one!—and many of you are too overwhelmed to even apply. But if you’re like 85% of small businesses in a recent Alignable poll, you need extra funds to make it through. So what do you do? Our Covid relief and Paycheck Protection Program (PPP) guide is here to help.
A Complete Covid Relief and PPP Guide
Based on a webinar with experts at the Small Business Administration (SBA)—Carlos Hernandez, a lender relations specialist, and Nadine Boone, assistant district director in Massachusetts—this guide to PPP and Covid relief has answers to your top loan questions and resources to learn more.
Because this crisis has been hard enough. Getting the funding you need shouldn’t be.
1. What is the Paycheck Protection Program?
Before we dig into the details, let’s cover the basics. If you’ve heard the acronym PPP thrown around but aren’t quite sure what it means, this is for you.
The PPP is a United States, SBA-backed loan program created to help small business owners make it through the COVID crisis. It was intended to help businesses keep their employees, hence the name, but you can now use the funding to help with things like paying rent, utilities, or interest on your mortgage.
If you use the funds for approved purposes (and at least 60% on payroll costs), you can apply for PPP loan forgiveness, meaning you won’t have to pay the loan back. The latest updates to the forgiveness process make this way easier, which we’ll get into later.
Because we’re now in the second round of PPP, you can apply for the program twice and receive two separate loan amounts, provided you hit certain requirements.
More money = more help for your business. Win-win.
The program applies to small businesses of all sizes, so there are PPP loans for self employed individuals, independent contractors, and sole proprietors.
For more information, check out these links from the SBA:
2. What was in the latest PPP loan update?
The program has evolved, which is good news for you. The new PPP guidelines were announced by President Biden on February 22, 2021. Here’s a summary of them.
- Formula changes for solos: Sole proprietors, independent contractors, and self employed individuals (those who file IRS Form 1040, Schedule C) can now apply for the program using their gross income instead of net profit. That means you qualify for larger loans than you previously would.
- More access for more people: If you’re behind on your student loans or have a prior non-fraud felony conviction, you can now apply for a PPP loan.
Find more details about the newest changes in the new interim final rule.
3. Can I still apply for PPP?
Yes! The PPP loan application deadline was recently extended to May 31, 2021 via the PPP Extension Act. The SBA has until June 30, 2021 to submit applications, but those applications must be submitted prior to June 1. So be sure you get them in before then.
4. Does 100% of the PPP loan need to be used for payroll?
A common question around PPP loans is whether you have to use the funds only for payroll.
“The intention of this program is to pay your employees and keep them on payroll,” says Carlos. “With that being said, there’s a 60/40 split that SBA is looking for.”
In other words, at least 60% of the loan must go toward your payroll costs, explains Carlos (though it’s perfectly fine to spend 100% on payroll if you choose). You can use the remaining 40% for:
- Mortgage interest
- Worker protection costs related to COVID-19
- Uninsured property damage costs caused by looting or vandalism during 2020
- Certain supplier costs and expenses for operations
The worker protection costs category has been newly expanded—another bit of good news, says Carlos.
“If you have to modify your restaurant to include some barriers or supply protection for your employees, those are now included as eligible costs.”
5. How much time do I have to use the funds from my PPP loan?
You have to use the funds within your covered period. The covered period of the PPP loan, according to our SBA experts, is eight to 24 weeks.
Your covered period begins the day you receive the money from the bank.Carlos Hernandez, Lender Relations Specialist, SBA
So what does that mean exactly? “Your covered period begins the day you receive the money from the bank,” explains Carlos. Then, you have as little as eight weeks or as many as 24 to spend the funds.
Carlos recommends that you track your spending or costs within your covered period, which will make the forgiveness process easier since “only expenses and costs during this period are eligible.”
6. How do I qualify for a second draw PPP loan?
Wondering if you can apply again?
You qualify for a second draw PPP loan if you hit a few requirements:
- You received a PPP loan previously and, “you either used up or will use up all of the proceeds for eligible expenses from the first time draw loan,” says Carlos.
- You have 300 or fewer employees.
- You have a 25% or more reduction in gross receipts between the same quarter in 2019 vs 2020.
A note on the quarters: “They’re calendar quarters,” Carlos says. “You can’t pick any three months.”
Hit the criteria? Here’s how and when you can apply.
7. What are the new rules for PPP loan forgiveness?
You can apply to have your PPP loan forgiven, provided you used the loan for approved costs within your covered period. You’re eligible for forgiveness for the full amount of your loan if you kept your employee and compensation levels the same, spent the funds on approved costs only, and used at least 60% of it to maintain payroll.
The process varies depending on how large your loan was.
There’s a streamlined forgiveness application form for any small business owner with a PPP loan of $150,000 or less.
If you have a loan for less than $150k, you’re in good shape. “There’s a streamlined forgiveness application form for any small business owner with a PPP loan of $150,000 or less,” says Carlos.
The application form, 3508S, has only one page for you to fill out. Even better? You don’t need to submit your receipts, payroll, rent checks, or other documentation.
Check out this guide to PPP loan forgiveness under $150k to learn more.
If your loan is over $150k, you’ll have to use either the 3508EZ form or the 3508 form, which are more complicated and require you to submit documentation along with the application.
To learn more about the differences, check out the SBA’s Frequently Asked Questions about PPP Loan Forgiveness or head to their forgiveness forms and instructions page.
One other thing to know? The forgiveness process starts with your lender. Check with them to see what their process is like, whether they have an online portal or take applications manually.
Note that the latest PPP loan forgiveness update gives lenders only 60 days to review the application and send it to the SBA, which then has 90 days to review and approve it.
8. What is the PPP loan forgiveness deadline?
While there is no set deadline to apply, there are a few things to know.
First, you can apply for forgiveness as soon as you’ve used up all of the funds from your loan. And you have up to the maturity date of the loan to apply, which is either two or five years depending on when you received your loan.
“If you received a loan before June 5, 2020, the maturity is two years only,” explains Carlos. But you can actually work with your bank to change that. “You can negotiate with your lender to extend it to four to five years,” he says.
However, if you wait more than 10 months after the last day of your covered period to apply for forgiveness, you will have to start making payments. So make sure to apply within that timeframe to avoid paying.
Use any of your loan for unapproved costs? You’ll have to pay that back. But Carlos points out that the interest rate is low—fixed at 1%, non-compounding and non-adjustable, all good news if you’re stuck with a remaining balance.
Need more details? Go to the SBA’s PPP loan forgiveness page to dig in.
9. What other Covid relief options aside from PPP are available?
So far, this has primarily been a guide to PPP. But there are a few other options depending on the type of business you have. Here are a few:
EIDL (Economic Injury Disaster Loans)
The intention of the EIDL loan program is to help businesses cover operating expenses and other financial obligations, though unlike PPP, it does need to be paid back. And you can’t use your EIDL loan for the same purpose as your PPP loan.
The PPP is a loan that you have to acquire through the bank, and the Economic Injury Disaster Loan is an online application on the SBA website.Nadine Boone, Assistant District Director in Massachusetts, SBA
Some other differences? How you acquire the loan: “The PPP is a loan that you have to acquire through the bank, and the Economic Injury Disaster Loan is an online application on the SBA website,” Nadine says.
She adds that the terms of the loans are 3.75% fixed interest for businesses and 2.75% for nonprofits, and they are 30 year loans.
You can find more EIDL loan details, like loan terms and eligibility requirements, here.
The Shuttered Venue Operators Grant (SVOG)
“The SVOG is for the performance and entertainment industry,” explains Nadine, “and you must have been in operation as of February 29, 2020.”
It provides relief for either 45% of your 2019 gross income or $10 million for those in operation on January 1, 2019. And for those of you who weren’t operating then, the grants “will be for the average monthly gross earned revenue for each full month you were in operation during 2019 multiplied by six (6) or $10 million, whichever is less,” says the SBA’s Shuttered Venue Operators Grant site.
The SBA is still in the process of setting up the grant program and is not yet accepting applications, though they expect to begin in early April.
Nadine suggests eligible businesses keep an eye out for updates and, in the meantime, set themselves up with a SAM (System for Awards Management) profile.
“So, a small business owner who is in the entertainment or promotions industry that looks this up and sees that they qualify are going to need a SAM profile, and that takes anywhere from seven to 21 days.”
Visit sam.gov for more information or to apply for your SAM profile.
Pro tip: the SAM system has two types of applications; make sure you select the grantee application, not the contract application.
We hope that this Covid Relief and PPP guide helped you find the most important information about the current programs. The next step is reach out to your banker, lender, or accountant to see what options are available to you and how you should proceed.
In the meantime, here are some helpful resources to explore:
- Covid Relief Options: SBA
- Shuttered Venue Operators Grant: SBA
- Paycheck Protection Program Overview: SBA
- PPP Loan Forgiveness: SBA
- Lender Match Tool: SBA
- Covid-19 Economic Injury Disaster Loan: SBA
Did our guide to PPP and Covid funding options miss anything? What Covid relief programs did you use and what was your experience like? And how is your business recovering overall? Share your story in the comments below.
Thank you. My question : I applied for The first PPP program based on my employees payroll and was approved for a loan.
Now I discovered that as a sole proprietor I should have included MY income as well in the application , and therefore I received less than I was entitled to. Can I go back and apply for the difference ?
Hi Aaron, thanks for reading! From our understanding, you can apply for a second-draw loan if you meet the requirements to do so and then include your income to qualify for more funds. However, it’s probably best to direct this question to your accountant or your lender for specifics.
Here’s where you can see if you qualify for a second-draw loan.