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What Is the Paycheck Protection Program (PPP)?

What Is the Paycheck Protection Program (PPP)?

Established in 2020, the Paycheck Protection Program (PPP) provided small companies and freelance contractors loans to cover their payroll costs for up to eight weeks.

Thirty-four percent of American small businesses closed between January 2020 and May 2021. While this shows a large number of companies impacted by Coronavirus, the numbers could have been far more devastating without assistance programs put in place by the federal government.

The program gave $349 billion to small companies. It was later increased by an extra $320 billion to meet the demand from more applicants.

PPP loans are different from other SBA loans. PPPs can be partially or fully forgiven, but companies need to follow certain rules.

What Is PPP?

The federal government created the PPP loan program to assist businesses that were unable to finance their employees’ salaries without the aid of a third party but still provided valuable items and services for others. Through 100% federally guaranteed loans backed by the SBA, the PPP program gave American small businesses several weeks of cash-flow assistance.

Individuals were not able to obtain PPP loans; only businesses could borrow. PPP loans could keep a company operating during challenging periods. Still, the government did not provide the funds to pay personal debts or create new PPP loans until full repayment of the original loan was complete.

The PPP helped small businesses by providing them with loans between $100,000 and $4,500,000. The SBA provided up to 85% of PPP funding for part of the loans.

The loans’ pilot program was an effort to allow small businesses with less than 250 workers and gross annual revenue of less than $5 million to apply for PPP loans. The goal of PPP was to assist firms by providing them with low-interest loans.

Because its cash flow was decentralized, the program allowed small enterprises to receive much-needed finance without relying on their credit score, assets, or collateral.

Who Could Apply for the PPP?

PPP loan application could be submitted by businesses in need: small businesses, sole proprietorships, independent contractors, and self-employed individuals.

Any participating depository institution, federally insured credit union, farm credit system institution, and fintech institutions that were licensed by the SBA could provide a PPP loan.

How Could a Business Use a PPP Loan?

The percentage of funds allocated to employee and benefits expenditures was a minimum of 60%. The remaining 40% consisted of mortgage interest payments, rent and lease payments, utilities, operations expenses such as software and accounting needs, property damage costs caused by public disturbances not covered by insurance, and worker protection expenditures to be COVID compliant.

PPP loans were not for payroll, rent, marketing, medical services, or distributions to shareholders. PPP was designed to be paid back within two years of the application date.

As you can see, the PPP helped to alleviate the financial burden for businesses affected by the Coronavirus. PPP loans meant that financial obligations were met, acting as a lifeline for many small businesses. Companies remained stable during the worst periods of the pandemic. The role this aid played in stabilizing a troubled economy should not be understated.


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by Harvey Carr // Harvey Carr is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.