The SBA PPP (Paycheck Protection Program) loan was established under The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide financial comfort to small businesses in the wake of the COVID-19 pandemic.
A PPP loan is a solution designed especially for US-based businesses affected by COVID-19.
Here are the eligibility criteria for a PPP loan -
- Small business with 500 or fewer employees
- Small businesses, private nonprofits, LLCs, and veteran groups, among others
- Self-employed people who file an IRS Schedule C with Form 1040, such as independent contractors and sole proprietors (must have been in operation on February 15, 2020, and have the US as their main place of residence)
A PPP business loan calculator is a tool that is designed to give you an estimate of the amounts involved in a PPP loan – specifically the estimated maximum loan amount along with the forgivable amount (estimated) of the PPP Loan.
It's worth noting that the calculator is not designed to cover every unique situation. Ideally, you should work with your lender or a loan agent to calculate the exact amounts involved for your unique PPP Loan application.
In general, businesses under PPP loans are eligible to receive up to $2 million. A business is eligible for an amount that is equal to 2.5x of its average monthly payroll costs.
However, the actual PPP loan calculations can be more complicated than they appear since you’ll need to subtract any payroll costs that don’t qualify under PPP.
Here is a step-wise guide to calculating the maximum PPP loan amount your business can receive -
1. Identify your payroll costs that qualify under the PPP loan.
2. In case you employ other people - it is the sum of payments of any compensation concerning employees that are:
- Compensation: Salary, wages, cash tips/equivalent, commission, and other similar compensation
- Paid time off, family, medical, sick leave, or vacation pay
- Healthcare costs: Various payments required for group healthcare benefits, including insurance premiums
- Retirement benefit payments
- Allowance for dismissal or separation
- Various state and local taxes associated with the employee compensation
3. If you’re self-employed, a sole proprietor, or an independent contractor - it is your 2019 net income (not more than $100,000).
The following are excluded from the SBA loan calculator -
- Any compensation of an individual employee with an annual salary of over $100,000 ($8,333/month)
- Any taxes imposed or withheld under Chapters 21, 22, and 24 of the IRS Code.
- Employee compensation for any individual whose principal place of residence is outside the US
- Qualified sick and family leave for which you can receive credit under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127)
Once you calculate your total eligible payroll costs, divide them by 12 to get the average monthly payroll.
Now, multiply your average monthly payroll by 2.5 to get the total amount you can receive under the PPP loan. Given below is an example of a PPP loan calculator -
Step 1 - Total annual payroll costs ($7,00,000) - Excluded Payroll costs ($60,000) = Eligible annual payroll costs ($6,40,000)
Step 2 - Eligible annual payroll costs ($6,40,000)/12 months = Average monthly payroll ($53,333)
Step 3 - Average monthly payroll ($53,333)* 2.5 = Total amount eligible for PPP loan ($133,332)
Yes, PPP loans may be forgiven. This simply means that they do not have to be repaid. You need to remember that you will have to repay the loan if you do not apply for forgiveness.
You need to do this directly with your lender, and they are required to process your request within 60 days. Typically, you will be eligible for full forgiveness of a PPP loan if you follow the guidelines below.
You use the loan for the purposes listed below -
- Payroll - salary, wage, medical, sick leave, vacation, health benefits
- Mortgage interest – if the mortgage was signed before February 15, 2020.
- The business maintains the number of Full-Time Equivalent (FTE) employees
- You use at least 60% of the PPP loan on eligible payroll costs
- No more than 40% of PPP loan was used for non-payroll costs
For any amounts not forgiven under PPP, the maximum loan term is ten years, while the maximum interest rate is 4%, with zero loans and prepayment fee (the SBA establishes application fees caps for lenders who charge).
No, an entity is eligible to get one PPP loan only. Each of these PPP loans will be registered under a Taxpayer Identification Number at the SBA to prevent multiple loans to the same entity.
Here are the key terms of this program -
- The interest rate on PPP loans is 1%, whereas the repayment period is two or five years, depending on when the funds were disbursed for the loan.
- You can defer payment under the PPP loan until the SBA remits the amount to the lender. If the loan forgiveness amount the SBA remits is less than the total amount of the loan, the business owes the remainder of the loan funds.
- Interest on the loan will be applied from the date of the disbursement of funds.
Would-be borrowers can apply for a PPP loan through an SBA-approved lender. These SBA-approved lenders can either be online lenders, local banks, or credit unions. To be approved by an online lender for a PPP loan, you must be subscribers to the service.
The borrowers must use 60% of PPP funds for payroll expenses (based on gross pay, not net pay). You can also add here the costs of health insurance and retirement (if the employer pays those for the employee).
Among the other costs that count here include -
- Various expenses used for employees protection and payroll costs
- Mortgage interest and rent expense
- Utility expenses
- Specific operations expenses
- Essential supplier costs
- Property damage costs not covered by any insurance
- Costs related to COVID-19 – if the business paid employees while they took leave to get vaccinated for COVID or battled COVID symptoms, those costs could be included as worker protection expenses (part of payroll costs).
First-draw PPP loans refer to the first time a business borrows a PPP loan. In contrast, second-draw refers to the second time a business borrows a PPP loan. Initially launched in 2020, the PPP was reinstated in January 2021, and certain businesses are eligible for a second draw PPP loan.
PPP loan applications are open from January 13, 2021, through May 31, 2021, and the same has not been changed under the new administration.
Typically, you’ll require documentation to prove expenses related to payroll and other costs to support your applications for PPP loans. This can include documents such as annual or quarterly tax filings, paperwork such as mortgage payments (only the interest amount), and utility bills.
Requested documentation may also vary from lender to lender, but most of them would require the following -
- Copies of business owner IDs
- Accounting info
- Payroll reports
- Tax forms
You need to consult your lender(s) before submitting multiple PPP loan applications. While there is no clear guidance on whether or not you can apply with multiple lenders, there is no penalty for doing so either. However, you will definitely be penalized for accepting multiple PPP loans. Therefore, make sure to only accept one.
In general, there is a period between when a lender submits their PPP application information to the SBA and when the SBA grants a loan number back to the lender to continue the process.
Since the PPP loan approval now also includes additional front-end compliance checks, it is recommended to wait for further guidance from your lender.
In case of rejection, you mainly have two options - either appeal the PPP decision or seek an alternative.
In case you choose to appeal the loan rejection, you need to hire an attorney as these appeals are only open to attorneys.
On the contrary, if you choose to look for alternatives to the PPP, you need to know that due to the pandemic, the SBA is covering six months' worth of principal and interest payment for certain loans.
While your lender can point you to the correct application from the flurry of PPP applications/versions available (including a new set released on March 3, 2021), here is a quick brief -
- If you're first-time PPP borrowers who don’t file Form 1040, Schedule C (or don’t choose to use the gross income to make their PPP loan max calculation), you need to use this application.
- If you're first-time PPP borrowers who do file Form 1040, Schedule C (and do choose to use the gross income to make their PPP loan max calculation), you need to use this application.
- If you're second-time PPP borrowers who don’t file Form 1040, Schedule C (or don’t choose to use the gross income to make their PPP loan max calculation), you need to use this application.
- If you're second-time PPP borrowers who do file Form 1040, Schedule C (and do choose to use the gross income to make their PPP loan max calculation), you need to use this application.
The PPP loan program was launched by the federal government to help businesses struggling to survive during the COVID-19 pandemic.
Administered by SBA under its 7(a) lending program, the key goal of the program is to help small businesses pay for their near-term operating expenses and provide an incentive for employers to keep them on the payroll. This post discusses everything about the program and PPP loan calculator to help you gain maximum advantage.