Small businesses struggling due to economic impact of pandemic can get support with US government-backed loans in Paycheck Protection Program
Between April and August 2020, as you likely remember, the Paycheck Protection Program distributed $523 billion in government-backed loans to 5.2 million small businesses. The intention was to help businesses continue paying their employees amid the COVID-19 pandemic’s economic crisis.
Now, 5.2 million businesses is no small number. Compare that to 2017, when 40% of American business owners applied for a loan. And while for many businesses, these PPP loans were a saving grace, it’s becoming clear that the devastation caused by the pandemic is not over, and financial assistance is still needed.
That’s why Congress included in the stimulus package it passed in December $284 billion in new funding. “PPP 2.0” will offer some of the hardest-hit businesses the opportunity for a second forgivable loan. However, there will be some minor differences from the last round. Let’s take a look at what you need to know.
The rules will be different for first-time applicants compared to returning borrowers.
First-time applicants: The business must have no more than 500 employees. Applicants must have been in operation on Feb. 15, 2020. Self-employed business owners and independent contractors are eligible but must have shown a profit on their 2019 tax return.
Returning borrowers: Applicants requesting a second loan must have no more than 300 employees. Publicly traded companies, political lobbyists, and members of Congress are not eligible to receive a second loan. Applicants must be able to prove hardship as a result of the pandemic, showing at least a 25% decrease in gross receipts between comparable quarters in 2019 and 2020. For instance, the floral industry is worth over $100 billion, but many small florists saw a significant loss in revenue as flower purchases were suddenly deemed unimportant during the economic downturn. Finally, businesses must prove that they have used all of the funds from the first loan in appropriate ways.
When to Apply
Most small businesses can begin applying on January 19. There are projected to be thousands of participating lenders, including major banks like JPMorgan Chase and Wells Fargo as well as fintech institutions like PayPal. The application deadline is March 31.
First-time borrowers may receive up to 2.5 times their average monthly payroll cost, with a cap at $10 million. It’s important to note that the calculation is different for sole proprietors: they are eligible for 2.5 times the monthly profit reported on their 2019 Schedule C tax form.
Second-time borrowers are a bit more restricted. Their loans are capped at $2 million.
Back in April, PPP funds ran dry in only 13 days, leaving many desperate small businesses out in the cold. Fortunately, Congress quickly allocated more. The Treasury Department believes that funds will not run out this round, saying that $284 billion is expected to be sufficient to fund all qualified applicants.
Small businesses from mom-and-pop shops to private medical practices are struggling to keep the lights on, even 10 months after the initial shut-down. While some 4 million Americans are wearing braces, orthodontists had to close their doors to slow the spread of the virus, and while telemedicine has grown in popularity in certain medical fields, installing metal braces is not something one can do over Zoom. The second PPP loans will likely prove vital to the well-being of many workers and small business owners across the country.
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