SBA’s Payment Protection Program – What You Need to Know

Photo by The New York Public Library on Unsplash

Last week I discussed the differences between monetary policy and fiscal policy and framed both within the context of the COVID-19 pandemic. This week I thought it would be beneficial to provide an overview of the SBA’s new Payment Protection Program, since this is a good contemporary example of fiscal policy in action.

The Payment Protection Program (PPP) is part of the broader CARES Act that was approved by Congress last week. This program is specific to small business owners and has been implemented with the aim of providing payroll relief in the form of low interest loans, so small business owners can retain employees. In addition to employee retention, the PPP also allows loan proceeds to be used for mortgage payments, utilities, health insurance, and retirement contributions. Moreover, so long as borrowers can demonstrate that they have allocated loan proceeds to eligible uses, they will be eligible for loan forgiveness. A more detailed overview of the PPP is provided below.


The PPP authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone. The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months.

Eligible Borrowers

All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries (click HERE for additional detail).

For this program, the SBA’s affiliation standards are waived for small businesses (1) in the hotel and food services industries (click HERE for NAICS code 72 to confirm); or (2) that are franchises in the SBA’s Franchise Directory (click HERE to check); or (3) that receive financial assistance from small business investment companies licensed by the SBA. *Additional guidance may be released as appropriate.

Eligible Purposes of the Loan

You should use the proceeds from these loan on:

  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Interest on mortgage obligations, incurred before February 15, 2020; and
  • Utilities, for which services began before February 15, 2020.

A Deeper Look at Payroll

Eligible payroll costs include the following:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self employment, capped at $100,000 on an annualized basis for each employee.

Max Loan Amount and Number of Loans

Eligible borrowers will only be allowed to qualify for one loan; however, these loans are unique to individual businesses and the SBA has waived its affiliation basis requirements. Therefore, borrowers with multiple businesses will be able to apply for relief on a business by business basis – so long as the loan request(s) are in line with the eligible payroll applications.

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

Loan Structure

PPP loans will be fixed at 0.50% for the life of the loan. The maximum allowable term will be 2 years. All payments are deferred for 6 months (however, interest will continue to accrue over this period). There are no prepayment penalties for these loans, no collateral is required, and the personal guarantee has been waived.

How to Apply

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit for a list of SBA lenders.

Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. *Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Required Certifications

As part of the application process, borrowers must certify in good faith that:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
  • You have not and will not receive another loan under the program.
  • You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of eligible payroll costs.
  • Loan forgiveness will be provided for the sum of documented eligible payroll costs. *Due to the likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • All information provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.


This is arguably the most comprehensive relief package put together by the Federal Government and it is designed with the primary goal of ensuring small businesses are able to retain their employees and maintain essential overhead during these uncertain times. Moreover, the underwriting guidelines for this program have been significantly relaxed to maximize utilization of the program and empower lenders to close transactions efficiently.

If you know any small business owners that would benefit from this program, please share this post far and wide! If you are a small business owner, I hope this post was helpful and that you take advantage of this program and get access to much needed relief.

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