Everything you need to know about Paycheck Protection Program

What is the Paycheck Protection Program?

Backed by SBA (Small Business Administration), the Payment Protection Program is a loan designed to provide funding for small businesses and to keep the workers and employees on continuous payroll, paying the rent, mortgage interest, utilities, etc.

Payment Protection Program is a $350 billion program that will give these small businesses with about eight weeks of the cash reserve by the SBA.

Read the entire bill here. The program derives from CARES - Coronavirus Aid, Relief, and Economic Security Act.

What are the program highlights?

● All small businesses are qualified to avail of the loan.

● The loan does not require any collateral or guarantee.

● The loan is deferred for the first six months, which means you don't have to pay any money for that period.

● The maximum amount that a single small business can avail is $10 million.

● The loan will cover the eight weeks expenses from the date of availing the loan.

● The loan can be laid entirely off and turned into a non-taxable grant.

Who qualifies for the program?

Small businesses with a staff of fewer than 500 people per location, independent contractors, self-employed citizens, sole proprietorships all qualify for this loan.

Say you are a mask manufacturing business, and you are a small scale as well. Still, you will not fall under the same category since your business has been probably doing better than ever during the time of the pandemic.

● Self-employed individuals have to present payroll tax filings to the Internal Revenue Service.

● Independent contractors have to submit Form 1099-MISC in along with Schedule C.

● Sole proprietorships have to submit a Schedule C from the tax return filed (yet to be filed), which shows the net profit from the sole proprietorship.

● Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees, or that meets the SBA industry size standard if more than 500 employees.

How is the loan to be used?

The 75 percent of the Paycheck Protection Program is to be utilized for the payroll of employees and maintain the salary levels. The remaining amount of 25 percent can be used for paying mortgages, rents/leases, and other essential utilities required to run the business operations.

If a business adheres to the policies and guidelines, the loan may be completely waived off.

What does the payroll cost in the program include?

1. The payroll costs include the salaries, wages, or commission of the employees.

2. It includes the benefits of the employees, such as medical, sick leave, parental, family, or vacation allowance.

3. For independent contractors and a sole proprietorship, the salary, commission, wages, net income is limited at $100,000 annually for every employee.

How should you apply for the program?

The Small Business Administration does not give money to you. They are at the backend of the money providers who lend money to small businesses. Check out SBA's Money Lender Tool to find a suitable lender who will be eligible to give the money.

The application for sole proprietorship started on April 3. The same began for independent contractors and self-employed individuals on April 10. The deadline to submit the application form as of now is June 30.

While applying for the loan, you have to verify:

● The economic risk that makes it necessary for you to apply for the loan.

● The funds will ensure the continuous payrolls of employees and wagers, and to make payments for mortgage, lease, and utilities.

● You will receive multiple loans from the same program.

● All the documents which reflect the employee strength, payroll structure, dollar amounts of payroll costs, previous mortgage interest payments, rent payments, and covered utilities.

● You have to give an acknowledgment to the lender that will calculate the eligible loan amount using the tax papers you gave them. You need to declare that the tax documents are the same as those submitted to the IRS.

What are the financial documents needed?

You are required to submit payroll/bookkeeping records to verify the business expenses. This includes your payroll processor records, tax filings, tax forms from 2019, Schedule C for Sole Proprietorship, and Form 1099-MISC documents.

You can apply to more than one lender and depending on who processes the application first will receive the approval number from SBA and you will be qualified to avail the loan.

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