Is the Payment Protection Program a Loan?

The chances are very likely that if you are a small business trying to survive Covid-19, then you have received a PPP loan.

This is all thanks to the government’s swift action of passing a two trillion (yes, you read that right—trillion!) dollar stimulus package in an effort to keep the economy from crashing and keep as many businesses as possible alive.

What is PPP?

The payment protection program is part of the CARE Act—which when it was passed, released the two trillion dollar stimulus package. The main objective of the PPP was to ensure that people were given direct and quick access to funds so that they could survive this challenging period of time.

If businesses meet the necessary criteria, they would be eligible to apply for a PPP loan, which would cover up to 2.5x the costs of paying their employees. The money from this loan is to be used for business expenses that do not just ensure businesses can pay their staff, but that they can also pay any rent, utilities or mortgage payments on their commercial property.

Is PPP a loan or a grant?

So the good news is, businesses are able to find immediate financial relief through PPP. But, it is important to understand the rules and regulations around the money that is distributed through the program.

While the government released a two trillion dollar stimulus package, it is important to remember that the payment protection program funding is not free. Nothing in life ever is.

When businesses apply for PPP, they are essentially agreeing to get short-term relief with the long-term understanding that the loan will be paid back at some point down the road. While the loan interest rate sits at a low 1%, there are payment expectations of any business that borrows this emergency money.  However, just like other loans, there is always room for “forgiveness”.

PPP loan forgiveness can be achieved for businesses that follow a certain set of guidelines—which have been outlined as an encouragement to use the loaned money correctly. For example, if a business uses three-fourths of the PPP loan for paychecks to keep their team employed, and twenty-five percent on mortgage, rent or utilities, they can qualify for complete loan forgiveness!

Four criteria to ensure loan forgiveness

  1.       The funds provided from the PPP loan must be used on costs that are approved by the government (ie: normal business operational costs)
  2.       Using the PPP loan for payroll is the main expectation of the PPP loan and should not be compromised to compensate for other costs
  3.       The business must ensure their employees remain paid for at least 8 weeks after the PPP loan is granted
  4.       The business must adhere to the already agreed-upon salaries of their employees during this time, meaning that pay-cuts are not acceptable during those 8 weeks

What should businesses do next

If you are a business who has already received a PPP loan or are considering applying for one, make sure to have a chat with a legal expert or counsel. Ensuring that you adhere by the expectations of the loan sets your business up for a much better rate of survival following the mess that Covid-19 has created for us all. It is completely possible to get access to this loan without being burdened by interest or re-payment plans.

Doing your due diligence will really pay off in the long run. Just take the time to crunch out the numbers beforehand and see where your business can afford to take a bit of a hit for a little while.

The good thing about all of this is that nothing in life lasts forever. The challenges Covid-19 has created for businesses will only be temporary. You just have to hang in there and know you do not have to do it alone!