Business Guidance

Paycheck Protection Program, what is it and how can it help small business owners?

On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act was signed into law by President Donald Trump that funded the historic $2 trillion stimulus package.

The Paycheck Protection Program (PPP) provided up to $10 million in small business loans (500 or fewer employees per physical location, and self-employed individuals) that were in business prior to February 15, 2020. The loan defines the covered period as beginning on February 15, 2020 and ending on June 30, 2020.

The size of the loan is determined by a formula that takes into account the payroll costs incurred by the business.
The Lenders can determine the borrowers eligibility and creditworthiness through a streamlined method. Eligibility is determined on whether the business was operational on February 15, 2020, and if they had employees for whom they paid salaries and payroll taxes, or an independent contractor.

Borrowers must certify that the loan is necessary due to the uncertainty caused by the pandemic and funds will be used for retaining workers, maintaining payroll, and for the payment of their lease and utilities.
Under Section 1106: PPP loans are forgivable if they meet the certain conditions during the covered period (8-week period after the origination date of the loan):

1. The loan proceeds must be spent on payroll costs, mortgage interest, rent and utilities for which were in existence or service began before February 15, 2020.

2. Forgiveness is limited to the principal amount of the loan.

3. Eligible Payroll costs do not include wages in excess of $100,000. Forgiveness is equal to the sum of the payroll costs incurred during the covered 8 week period compared to the previous time period.

4. Reduction in amount forgiven may occur if there is a reduction in the pay of employees above 25% of prior year compensation in the comparison period. To encourage the re-hire of employees previously laid off due to COVID-19, the 25% rule may be waived if they re-hire those employees.

Loans that are forgiven, do not need to be included in taxable income.

Loans issued prior to June 5, 2020 and that do not qualify for forgiveness, have an interest rate of 1% and a maturity of two years.
More information on PPP loans and PPP loan forgiveness can be found at

Biana Mester, Enrolled Agent

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