How a Paycheck Protection Program (PPP) Loan Works

Loan Amount: Loan amounts are up to 2.5x your average monthly payroll cost (or up to 3.5x for employers in the accommodation and food service industry), for a maximum of $2 million for Second Draw PPP loans and a maximum of $10 million for First Draw PPP loans.

Rates & Fees: 1% fixed interest rate, and no additional fees of any kind, including no origination fees or prepayment penalties.

Term Length: 5 years. For PPP loans made prior to June 5, 2020, the term length is 24 months.

Repayment: The payment deferral period for PPP loans is dependent on if and when you apply for loan forgiveness.*

Eligibility for a PPP Loan

Small businesses must meet the following criteria for a First Draw PPP Loan:

Businesses (including independent contractors, sole proprietors, self-employed individuals, nonprofits, tribal and veteran organizations) with 500 or fewer employees
Entities that meet the SBA industry-based size guidelines for small businesses

Small businesses must meet the following loan qualifications for a Second Draw PPP Loan:

Previously received a PPP First Draw loan, and has used or expect to use the full principal amount for approved expenses
Must be able to show proof of 25% or more gross revenue loss from 2019 to 2020
Has 300 or fewer employees

Understanding PPP Loan Forgiveness

You are eligible to apply for loan forgiveness starting at the end of the covered period (the 8- to 24-week period after you received your funds). You can apply for forgiveness any time up to the maturity date of your PPP loan. The maturity date is the date on which the final payment of the loan is due.

Eligibility

PPP Loans are eligible for forgiveness, including accrued interest

PPP Loans are eligible for up to 100% forgiveness
Only PPP Loan funds used for payroll costs, operation expenses, supplier costs, worker protection expenses, covered property damage costs, rent, covered utilities, and interest on a mortgage (no prepayments) are eligible for forgiveness
At least 60% of total PPP Loan funds must be used for payroll costs (including benefits)

Forgivable Amount

This is equal to the amount spent on allowable costs in covered period (8- to 24-weeks) after:

You received your PPP Loan funds or,
The first day of your next payroll cycle

The forgivable amount may be reduced under the following circumstances:

If you do not use the PPP Loan funds on allowable costs at the 60/40 ratio or,
If employee and compensation levels are not maintained

Forgiveness Application

There is 1 application form for PPP Loans at or under $150,000. There are 2 applications for PPP Loans over $150,000, the EZ Application and the Full Forgiveness Application.

To qualify for the EZ Application, you must be able to certify to one of the following:

You are a non-employer (self-employed) business, independent contractor or sole proprietorship
You did not reduce annual salaries/hourly wages of employees by more than 25% and did not reduce staffing levels during the covered period
You did not reduce annual salaries/hourly wages of employees by more than 25% and can demonstrate that you were unable to operate at normal business levels

For businesses with PPP Loans at or under $150,000, you can find your Forgiveness Application form here. For businesses with PPP Loans over $150,000, if you are eligible for the EZ Application, you can find the EZ Application form here. If you are not eligible for the EZ Application, you can find the Full Forgiveness Application form here.

PPP vs. EIDL Loans

The Paycheck Protection Program was a newly created SBA lending program under the CARES Act that was designed to get payroll assistance to small businesses quickly. The Economic Injury Disaster Loan Program is an established SBA lending program that provides low-interest loans to businesses affected by natural disasters. The CARES Act expanded funding to this program so that businesses impacted by COVID-19 could apply for these loans too.

PPP loans are a great option for small businesses looking for funds to primarily cover payroll and rent. An EIDL loan can be a good option for your business if you need funds to cover payroll, sick leave, mortgage or rent payments, or to cover pre-existing debt obligations. Payments are deferred for the first year, so you do have some time to get your business back up and running before you have to start repaying the loan. However, EIDL loans do not come with loan forgiveness, and the interest rate is higher than a PPP loan (though still relatively low). Additionally, you can apply for both a PPP loan and an EIDL loan, but you will need to have different use cases for the funds from each loan (i.e., you can’t list payroll support as your reason for needing funds on both applications). You can learn more about an EIDL loan in our detailed guide.

FAQs: SBA PPP Loans

*When will I have to start paying the loan back?
If you apply for forgiveness within 10 months after the end of the covered period (8- to 24-week period after you received your funds), PPP Loan payments are deferred until you have applied and received a forgiveness decision from the SBA, but interest will continue to accrue during this time.
If you apply for forgiveness after that 10-month mark but before the maturity date of your PPP loan (the maturity date is the date on which the final payment of the loan is due), then PPP loan payments are no longer deferred, and you will have to begin making loan payments to your PPP lender. Once you receive a forgiveness decision from the SBA, depending on the approved forgiveness amount, your PPP lender may have to reimburse the payments you’ve already made.
If you do not apply for forgiveness, payments are deferred for 10 months after the end of your covered period.

Does this loan require any collateral or personal guarantees?

Paycheck Protection Program loans are backed by a federal loan guarantee. There is no collateral or personal guarantee required.

What is the Payroll Protection Program?
There is no Payroll Protection Program. However, the Paycheck Protection Program is sometimes incorrectly referred to as the Payroll Protection Program.

I have not received a forgiveness decision on my existing PPP loan. Can I still get a Second Draw PPP loan?
Your eligibility for a Second Draw PPP loan will not be affected by the forgiveness decision on your existing PPP loan – but you will have to attest in your Second Draw PPP loan application that you used the full loan amount only on forgiveness-eligible expenses (for more information, see detailed guide from U.S. Chamber of Commerce).

What counts as payroll costs? I work by myself and pay contractors. Do I still have payroll?
Payroll costs include compensation and employee benefits, such as health insurance, retirement benefits, parental and sick leave, and vacation. If you are a sole proprietor or independent contractor, payroll costs include compensation or net earnings from self-employment. Costs per employee are capped at $100,000 on an annualized basis. For more details on payroll costs, review this excellent guide from the U.S. Chamber of Commerce.

I need funds beyond just covering payroll expenses. Are there other financing options available to me?
Yes. You may be eligible for an OnDeck Business Loan or an SBA Loan. You can also visit our resource hub to learn more about other government assistance programs available for small businesses during COVID-19. If your business has been affected by the coronavirus, you may be eligible for a loan or grant from your local or state government, or an SBA Economic Injury Disaster Loan (EIDL).

Can I get an OnDeck Business Loan in addition to a PPP Loan?
Yes. We understand that these loans can serve two different purposes, so we make it easy for you to apply for a small business loan with OnDeck in addition to your PPP Loan. Please note, OnDeck is not accepting applications for PPP loans.

If I apply for a Second Draw PPP loan with a different lender, who do I apply for forgiveness with on both loans?
If you received a PPP loan in 2020 with one lender, and apply for a Second Draw PPP loan with a different lender, you will need to apply for forgiveness for each loan separately with the respective lenders.

What am I eligible for if I returned some or all of my first PPP loan?
If you previously returned some or all of your first PPP loan funds and did not receive loan forgiveness by December 27, 2020, you may reapply for a First Draw PPP Loan or under certain circumstances, request to modify your First Draw PPP loan amount (for more information, see First Draw PPP loan guide from the SBA).