SBA Payroll Protection Loans for Small Businesses

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Paycheck Protection Program (PPP) Loans

If you own a business you should be applying for the SBA Payroll Protection Program (PPP). Small businesses now have access to $350 billion in government-guaranteed paycheck protection as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES).

What Is The SBA Payroll Protection Program?

If you own a business you should be applying for the SBA Payroll Protection Program (PPP). Small businesses now have access to $350 billion in government-guaranteed paycheck protection as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES). The program is designed to help businesses receive money quickly while encouraging them to keep employees on the payroll. Before applying, it’s important to educate yourself on the program, benefits, and terms. However, loans are issued on a first-come, first serve basis so if your business needs financial help you should apply as soon as possible. 

How Can PPP Be Used?

Small businesses can qualify for a forgivable loan using the Paycheck Protection Program (PPP). The PPP can help cover up to eight weeks of…

  • Utilities
  • Rent
  • Payroll costs
  • Interest on mortgages

Will PPP Loans Be Forgiven?

Businesses that retain employees and maintain salary levels can have all or part of their loan forgiven. The amount of the loan the SBA decides to forgive can depend on what the money was used for. Business owners should keep the listed uses above in mind when choosing how to spend the money. The SBA prefers business use loans to cover the expenses listed above. In order to qualify to have your loan forgiven the SBA can request detailed records. After the eight-week loan period, you can submit a request to your lender to have your loan forgiven. 

Who Can Apply For PPP loans?

  • Small businesses (500 or fewer employees)
  • Self-employed individuals
  • Independent contractors
  • Sole proprietorships
  • Nonprofits
  • Veterans organizations
  • Tribal businesses

In some cases, the SBA may offer PPP loans to businesses with more than 500 employees. To learn more about qualifying refer to the SBA’s “Table of size standards.”

How Do You Qualify For The Paycheck Protection Program?

If your business would normally qualify for an SBA 7(a) loan, then you should qualify for a PPP loan. The SBA has also extended who can qualify to include sole proprietors, nonprofits, general contractors, and more. While having less than 500 employees is the general norm for qualifying, exceptions can be made. In addition, businesses such as hotels and restaurants, with multiple locations can use their employee count per location to qualify. Even if your business is not in desperate need of a PPP loan, due to economic uncertainty you should still consider taking advantage of one. The main application form to qualify for a PPP loan requests your type of business, legal business name and DBA, business taxpayer identification number, business address and contact information, average monthly payroll, number of jobs, loan purpose, and more. The program should be offered through June 30, 2020. 

Before applying, you should have the following documents ready to submit:

  • IRS Form 941 for all four quarters of 2019
  • 2019 and 2020 payroll ledgers organized by employee for:
  • Wages, salary, commission, and tips
  • Medical, family, parental, vacation, or sick leave
  • Group healthcare benefits
  • Retirement benefits
  • Local or state taxes on employee compensation

How much can you borrow under the 2020 Paycheck Protection Program?

Businesses can receive a maximum loan amount of $10 million. Most borrowers will receive an amount equal to their average monthly payroll plus 25%. So how do you calculate this? To find your average monthly payroll you should use payroll numbers from the previous 12 months or from the calendar year 2019. The additional 25% is usually considered as 2.5 times one month of payroll. To calculate what your loan amount should be you can use the following formula...

Total for previous 12 months of payroll / 12 = average monthly payroll x 2.5 = loan amount

What Are The Average Rates For The Payroll Protection Loans?

Most PPP loans have a fixed interest rate of 1% and terms up to two years. Payments should be deferred for six months but you will still accrue interest during this time. No collateral should be required to secure a PPP loan.

What Do the PPP loans cover?

  • Payroll costs (includes part-time and full-time employees)
  • Wages, salaries, commissions, or tips ($100,000 gross maximum per employee)
  • Employee benefits
  • State and local taxes
  • Interest on mortgages (incurred before 02/15/2020)
  • Rent (lease agreements must be pre - 02/15/2020)
  • Utilities (service must have begun before 02/15/2020)

When Is the Deadline To Apply for Paycheck Protection Loans?

As of April 3, 2020, small businesses and sole proprietorships can apply for PPP loans. As of April 10, 2020, independent contractors and self-employed can apply for PPP loans. PPP loan applications must be submitted by June 30, 2020. Due to circumstances and economic uncertainty, this deadline is subject to change. However, as mentioned earlier, funds are available on a first-come first-serve basis.

Are Paycheck Protection Loans Right For Your Business Now?

PPP loans are designed to help and support a wide variety of small businesses. In most cases, PPP loans are more than ideal given the current circumstances. However, if for any reason you cannot qualify for a PPP loan or do not want to use a PPP loan, you can look into alternatives. While there is no clear alternative to PPP loans, you may be able to use a traditional business loan or SBA loan. One of the best alternatives can be an SBA disaster relief loan. Many lenders are deferring payments for 90 days for all loans. Compared to using the PPP, other loans will most likely not be forgiven, will not have super-low interest rates, and will not have payments deferred for six months. 

More Information About SBA Loans

In addition to the PPP, the SBA also offers other types of loans including disaster relief loans. SBA disaster loans can help businesses recover from major emergencies and disasters that have impacted them physically or economically. In order to qualify, you need a minimum credit score of 660 and your business must be located in the SBA-declared disaster area. Disaster loans can offer up to $2 million with terms up to 30 years. In addition, they usually have low-interest rates between 4% to 8%. Below is a list of different SBA loan types…

  • CDC/SBA 504 loans
  • MicroLoans
  • Disaster loans
  • SBA express loans
  • SBA export loans
  • SBA CAPLine loans
Loan Amount: $30,000 - $350,000
APR Range: 9.7% - 11.04%
Time To Fund: Typically take several weeks to fund, but can fund as quickly as within seven days.
Loan Term: Maximum loan term is 10 years.
Origination Fee: 4.00%
How To Qualify: 675+ Personal credit score
$50,000+ Annual revenue
Great Option For: Borrowers with good credit
SBA loans
Funding real estate purchases
Refinancing debt
Credit Check? Soft credit check and hard pull
Co-Applicants Accepted? No cosigners
Direct Pay-Off To Creditors? No
Click “Check Rates” to apply to SmartBiz

» MORE: SmartBiz SBA Loan Review

What Other Loans Are Available For Businesses?

  • SBA Loans

As mentioned above, the SBA offers different types of loans that are designed to support small businesses. SBA loans can have higher loan amounts, lower interest rates, and more flexible terms compared to traditional business loans. However, they can also have complicated and lengthy application processes. The minimum credit score for SBA loans can vary depending on the type of SBA loan you are trying to secure. For most SBA loans, the minimum credit score requirement is 620. In addition, most borrowers require at least two years of business tax returns - at the very minimum. A detailed business plan, no passed default accounts, explanation of loan purpose, time in business, proof of insurance, desired loan amount, and more is usually required by the lender in addition to tax returns.

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  • Line of Credit

Business lines of credit can be compared to business credit cards. Rather than having a lump sum of cash deposited at the beginning of the loan, business lines of credit simply allow you access to money that can be used for business expenses. Once you withdraw funds, interest begins to accumulate. Business lines of credit are commonly used for operational expenses including supplies, payroll, or increasing inventory orders. The minimum credit score requirement can be just slightly higher for a line of credit - starting at 560. Most lenders require that borrowers prove at least $25,000 - $50,000 in annual revenue. 

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  • Term Loans

Term loans and lines of credit can have some of the lowest credit score requirements. The minimum required credit score for business term loans can start at just 550. Most lenders require that borrowers provide profit and loss or bank statements as proof of revenue. Using a term loan, business owners can borrow between $5,000 to $2,000,000 and receive funds as soon as 24-hours. In most cases, interest rates start at about 6% and terms are offered between 1-5 years for repayment. 

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