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Understanding the Payroll Protection Program

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In the response to the negative economic impact the Coronavirus has had on American business, the federal government implemented the Payroll Protection Program, a $349 billion component of the recent CARES Act to help small businesses through these difficult times. Applying is straightforward, the loan may be forgivable, and the purpose behind it is to help keep one’s employees paid and financially secure. 

What is It and How Does It Work?

The Payroll Protection Program offers loans to most United States businesses that have 500 or fewer employees, and have suffered from the slowdown of collective business activity. This direct assistance to business owners and sole proprietors aims to avoid layoffs and company closures through the incentive of allowing the loan to be forgivable if certain conditions are met.

Only available until June 30th of this year, it is highly recommended that any small business experiencing distress should apply as soon as possible to ensure they receive the funds they need in a timely manner. 

One can apply for the cost of one month’s average payroll multiplied by 2.5, or up to $10 million, whichever is less. You must be able to attest to your need for the loan and provide supporting documentation to the payroll figures that the loan amount is based on. Another generous feature is its 1% standard interest rate, with a six-month deferral on the first payment, and a loan term of four years to help make costs manageable.

The other component is based on the usage of the loan- you must apply at least 75% of the amount borrowed to payroll expenses. If this is not done, the terms of the loan still apply and it will need to be repaid. While the terms are certainly favorable, not doing so is missing the key incentive

Part of what makes the loan forgivable is if one continues to pay his or her employees for an eight-week period beginning from the time the loan is received. Businesses that rehire laid-off workers and raise wages to make up for salary reductions will still be considered eligible for forgiveness. 

How Can Small Business Owners Apply?

Reaching out to your current bank or other SBA-approved lenders is the best place to start. They will go over the guidelines of what information is required, and submit the application on your behalf. To learn more about the process, visit the link to the SBA’s website at the bottom of this article. 

The application itself is only a few pages long, but it is essential that the information submitted on it is as accurate as possible to ensure a timely release of funds. 

Several banking institutions have reportedly not been willing to process applicants that are recently new account holders at their bank, so please double check their policies. You will likely have a more expedient process at a bank you have an existing relationship with. 

Once submitted, businesses can expect relief to arrive usually within 10 calendar days. Programs like these don’t come around often, and if you or someone you know could benefit from this, it is strongly recommended you speak to your local banker or tax professional to begin to get that assistance on its way to you. 


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