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The following content is informational only. When making business decisions, we encourage you to seek personalized advice from qualified professionals.
The application for the Paycheck Protection Program (PPP), one of the two options for significant—and possibly free—funding from the $2 trillion stimulus package, is now open.
We surveyed more than 20,000 retailers and makers this week and 43% have already applied or started applying for relief. Another 40% haven’t applied yet, but already are planning to apply. Now that the applications are updated and released for both, the time to apply is now.
The SBA has released important new information, so we’ve laid out the most relevant information here for you. Additional guidance may be coming, and we will keep you updated as we learn more.
About the Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) provides up to 8 weeks of funding for your business expenses including payroll, utilities, rent, and mortgage interest. Up to 8 weeks of covered expenses can be forgiven if you keep your employees on payroll. The loan can be made for 250% of monthly payroll expenses, capped at $10 million.
An important clarification from the SBA is that at least 75% of the forgiven amount must be spent on payroll. The SBA and Treasury believes that there is finite money available, and that Congress’ overarching goal with this is to keep workers paid and employed. As a result, they’ve limited the use of the loan funds to help to ensure they’re used for payroll protection. You can read more here.
Here’s an example. Let’s say you run a business with $120,000 of annual payroll, where no employee makes over $100,000, and you’re applying for this program.
- Annual payroll: $120,000
- Average monthly payroll: $10,000
- Multiply by 2.5 = $25,000
- Your maximum loan amount in this example is $25,000
You decide to take the full loan amount, then spend $18,750 (75% of the loan) on payroll and the other $6,250 on rent and utilities over an 8 week period. You’ll then get the full $25,000 amount forgiven.
Read more about the program here and see an FAQ here.
How to apply
The SBA has streamlined the process to make it easier for applicants and lenders. Applicants have to submit much less paperwork than usual, requiring only an application form and payroll documentation, while the lenders have an easier process that will let them move faster.
As of April 3, 2020, you can apply through Small Business Administration (SBA) lenders. Here’s how.
- First, check with your existing bank. Many banks are SBA-approved lenders, and if you have an existing banking relationship with them, it may make your process faster. That said, some have maxed out their funding or simply can’t process more loans right now. If that’s the case, consider other options.
- As an alternative, work through a free lending partner. If you don’t already have a lender, consider working with one of our partners, Womply or Divvy. They can help prepare your application at no cost to you, provide support, and submit your application quickly for efficient processing.
- In either case, seek out additional financing options. We also recommend you start looking for additional lending by applying to an EIDL and looking into state, local, and private relief funding for your area.
Information changes daily, so check back for updates.
When to get started
The sooner the better. While the SBA has streamlined the process a lot, these loans may take three weeks to process (or, in some cases, even longer). Fortunately, paperwork requirements are much lighter than usual for a loan – just an application form and payroll documentation – so if you haven’t gotten started, get started today to get your place in line!
What about the Economic Injury Disaster Loan (EIDL)?
The Economic Injury Disaster Loan (EIDL) provides a one-time grant of up to $10,000 within three days of applying, and you’re not required to repay. As of this week, small and medium-sized businesses can submit a faster, simplified application here.
If you previously applied for an EIDL and did not apply for the cash advance, you will need to reapply for the cash advance (which the SBA says will not impact your loan status or slow down an existing application).
Note that this program may run out of money, given overwhelming demand. If you do want this grant, we’d recommend applying quickly.
Can I apply for both programs?
According to new SBA guidance, if you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness.
Here’s an example. Let’s say you run a business with $120,000 of annual payroll where no employee makes over $100,000, and you’re applying for the PPP. You have a $10,000 loan outstanding still from the EIDL program.
- Annual payroll: $120,000
- Average monthly payroll: $10,000
- Multiply by 2.5 = $25,000
- Add EIDL loan (net of advance) of $10,000 = $35,000
- Your maximum loan amount in this example is $35,000
If you have applied to both programs or intended to apply to both programs, check with a financial advisor or lender about your options.
We’re here for you
We’re committed to helping you find the information you need to make important decisions about your business, and will provide more updates and trusted information as it becomes available. Please find more resources for makers here.
Please stay safe, stay connected, and join the conversation in our maker community forum.
