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paycheck protection plan

Following President Trump’s signing of the second coronavirus stimulus bill into law on Sunday evening, December 27, small businesses around the country may have another chance to apply for forgivable loans through the Paycheck Protection Program. This program began with the first coronavirus stimulus package, passed in March 2020. It allows companies who have been impacted by the COVID-19 pandemic — whether that means having had forced shutdowns or simply a general downturn in business because the economy has suffered — to get money from an approved lender to cover payroll and other expenses. If certain conditions are met, the loan ends up being fully forgiven and paid for by the federal government.

Paycheck Protection Program Details

This round of the PPP provides funding for up to $284 billion in loans. The maximum any individual business can receive is a loan of $10 million ($2 million if a business already received a PPP loan earlier this year.) In terms of how much each business is eligible for, the calculation works like this: a business is eligible for two and a half times its monthly payroll cost, not including an individual compensation in excess of $100,000 annually.

Businesses in the accommodation and food services industries, which have been especially hard hit by COVID-19 and the accompanying economic downturn, are eligible for up to three and a half times their average monthly payroll.

In addition to straight payroll costs, other expenses that PPP loans can help cover include paid leave (including vacation, parental, family, medical and sick leave), payment for dismissal or separation, healthcare coverage (including insurance premiums), retirement benefits and payment of taxes levied on employee compensation.

Can a Business Get a Second PPP Loan? Paycheck Protection Program Eligibility

paycheck protection plan

There are different rules for PPP eligibility depending on whether or not a business received a PPP loan in the first round of loans earlier this year. If a business did not receive a PPP loan yet, it must follow the rules for the original program: the business must have 500 employees or fewer. Any business that meets that simple guideline is eligible for a first round of PPP funding.

If a business received a loan earlier this year, though, there are stricter requirements to apply for a second. To get a second loan, a business must have 300 employees or fewer and must demonstrate that it suffered a reduction in gross receipts of at least 25% for one quarter in 2020 compared to the same quarter in 2019.

One other new wrinkle: publicly traded companies are not eligible for PPP loans. This provision is likely due to negative public reaction to big companies like Shake Shack getting PPP loans on technicalities (Shake Shack and some others returned this money after public outrage.)

Paycheck Protection Program Forgiveness Rules

As noted above, PPP loans are fully forgivable — meaning that the loan doesn’t need to be repaid, essentially turning it into a grant. Certain requirements must be met, though, for forgiveness to apply. At least 60% of funds must be spent on payroll. The other 40% can be used on other eligible costs including mortgage costs, rent and utility payments. Notably, the new bill expands these eligible costs to include expenses such as personal protective gear for workers and repairing damage to businesses caused by the civil disturbances that made so much news in 2020.

Paycheck Protection Program Application Process

Though these loans are administered by the Small Business Association, they are actually issued by independent lenders. Businesses who are interested in getting a PPP loan should talk to their bank to see if they are an approved lender. If not, a full list of approved lenders is available here.

The Bottom Line

paycheck protection plan

The new stimulus package provides an additional $284 billion in funding for Paycheck Protection Plan loans. These loans are for businesses that have been impacted by the COVID-19 pandemic and accompanying economic downturn. Businesses can apply for a second PPP loan if they got one earlier this year, but there are stricter limits. Loans are administered by the SBA but given through local lenders, and are forgivable if certain requirements are met.

Tips for Weathering the COVID Crisis

  • A financial advisor can be helpful in times of crisis. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool connects you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors, get started now.
  • Personal stimulus checks are also being given out as part of this package. Check here to see if you’ll be getting one.

Photo credit: ©iStock.com/Kameleon007, ©iStock.com/ljubaphoto, ©iStock.com/Ridofranz

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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