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Update: With the August 8 deadline having passed, the Small Business Administration (SBA) has stopped accepting applications to the Paycheck Protection Program. We’ll update this story if Congress passes legislation to reopen the program. As of the end of August 8, the SBA still had roughly $134 billion in unused funding.

As the country slowly reopens and restrictions are being lifted (and reinstated), small businesses and the self-employed are struggling to stay afloat. The Paycheck Protection Program (PPP), a  lifeline thrown out by the federal government, is meant to help them keep employees on their payroll. Allocated $349 billion plus an additional $310 billion, the program provides forgivable loans to qualifying businesses. If you’re a small business owner trying to make payroll, our calculator can show you what you can get through the program. The new deadline for applications is August 8.

Calculate Your PPP Loan Amount

The maximum amount of money you can borrow through the PPP is equal to 2.5 times your average monthly payroll costs or $10 million, whichever is lower. You should exclude from your calculation of average monthly payroll costs any compensation in excess of $100,000 per employee (which comes out to $15,385 per individual). But you can include payment for vacation, parental, family, medical and sick leave (that is not covered by another emergency loan/grant); payment for dismissal or separation; payment for group health care coverage, including insurance premiums; payment for retirement benefits and payment of state and local taxes assessed on employees’ compensation.

To calculate your payroll costs, you can use averages costs from calendar year 2019 or from the previous 12 months. If your business launched in July of last year or later, you can use the average monthly costs from January 1, 2020 to February 29, 2020. (Many banks are telling applicants with older businesses to use this year’s numbers if they are more favorable to them than last year’s.) If you are a seasonal business, you can use the numbers from February 15 or March 1, 2019 to June 30, 2019.

Additionally, you can add to your total loan amount the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31 and April 3, 2020, less any “advance” that is forgivable under an EIDL COVID-19 loan.

The calculator below will tell you how much you’ll be able to borrow through the PPP.

About the PPP Loan Program

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains several programs designed to help small businesses. The most popular of these is the PPP, which the SBA classifies as a 7(a) loan. Its aim is to help small businesses impacted by the crisis keep workers on their payroll. Those who have already had layoffs have until December 31 to rehire workers and restore any salaries that have been cut. (That said, the recently passed Paycheck Protection Plan Flexibility Act allows for exceptions when employers can’t refill positions with qualified personnel or when coronavirus-related health restrictions impede the return to pre-pandemic business activity.)

The main appeal of PPP loans is that all or part of each loan can be forgiven if certain head count and payroll criteria are met. Small business owners may receive only one PPP loan, though they can also apply for an Economic Injury Disaster loan as long as the two loans cover different costs.

The demand for PPP loans was so high that the government had to pass a new bill authorizing an additional $310 billion for loans. The SBA has begun to post every night how much money has been approved for loans: there is less than $141 billion left as of the morning of July 20.

Who Qualifies for a PPP Loan?

Small business with 500 or fewer employees may be eligible. Small businesses, S corporations, C corporations, LLCs, private nonprofits, tribal groups, veteran groups and faith-based organizations can all qualify. What’s more, self-employed people who file an IRS Schedule C with their Form 1040, such as sole proprietors and independent contractors, are also eligible, though they must have been in operation on February 15, 2020, and have the U.S. as their principal place of residence. (Partners who report self-employment income from partnerships are not eligible, however.)

Restaurants and hospitality businesses also make the cut if they have 500 or fewer employees per location. Details on the size standards and exceptions are on the SBA website.

Applicants more than 60 days delinquent on child support obligations, sex businesses, lobbyists, gambling establishments and businesses involved in illegal activities don’t qualify. Also, hedge funds, private equity firms and companies involved in bankruptcy proceedings are ineligible. Additionally, the Treasury has ruled that public companies with significant market value are likely ineligible. This is based on the fact that most publicly traded companies have access to sufficient liquidity, while to apply for a PPP loan, you must certify that the loan is “necessary to support [your] ongoing operations.” In other words, the PPP should be your only way to access needed financing.

Terms of PPP Loans

Loans offered by the PPP are 100% forgivable if businesses meet certain criteria. This means that the loan essentially functions as a grant – aka free money – if you meet the conditions laid out in the CARES Act and subsequent Paycheck Protection Program Flexibility Act (PPPFA).

Eight weeks of payroll costs, plus accrued interest on the PPP loan, will be forgiven as long as the full-time head count and payroll at a firm stay the same as they were on average in 2019 (or within the past 12 months – your bank will say how it is counting); between February 15, 2019 and June 30, 2019 (if you use seasonal workers); or between January 1, 2020 to February 29, 2020 (if you launched your business in July last year or later). Businesses that have already cut salary or laid off employees have until December 31, 2020 (the PPPFA just extended this deadline from June 30) to rehire staff and reinstate salaries to pre-crisis levels. (Again, you have safe harbor if your employees do not want to return and you cannot find qualified personnel to replace them or if your business activity has not returned due to social distancing and other COVID-19 health directives.) The part of the loan that covers mortgage interest, rent and utilities during the covered period after receipt of the loan will also be forgiven, up to 40%.

Any part of the loan that is not forgiven (you’ll have to request forgiveness from the SBA and prove that you used the money to cover payroll, etc.) will be due in full in five years (the PPPFA just increased this from two years), with payments deferred for six months. The interest rate is fixed at 1.00%. Remember that if you don’t generally maintain head count and payroll at pre-pandemic levels, the amount that is forgiven will be reduced.

You can submit an application for a PPP loan through a local lender. If you are looking for a lender to work with, check our guide to PPP loan providers and their requirements. Or use the SBA’s lender finder tool.

Tips for Surviving the Recession

  • Many financial advisors specialize in working with small business owners. Finding the right financial advisor for you doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • The government has various other programs too, including other SBA 7(a) loans. Consider all options when you are thinking about how to get help for your small business.

Photo credit: ©iStock/Stork

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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