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The Paycheck Protection Program, or PPP, is a small business loan program approved in March 2020 as part of the CARES Act.
Federal PPP loans carry no fees, don’t require a personal or business guarantee, and have a fixed interest rate of 1%. In addition, PPP loans can be forgiven if the money is used for certain business expenditures like payroll, rent, mortgage payments, or personal protective equipment for employees.
For first-time PPP loans, small businesses with fewer than 500 employees qualify. For second-time PPP loans, small businesses with fewer than 300 employees and a 25% reduction in revenue from 2019 to 2020 qualify. S corporations, C corporations, LLCs, and nonprofits are eligible, although most publicly traded companies are not.
The Biden-Harris administration recently announced several important changes to how the Paycheck Protection Program works to better serve the smallest of small businesses. The first key change is that small businesses now have priority access to PPP loans. Starting Wednesday, February 24th, only businesses with fewer than 20 employees are eligible to apply for a PPP first- or second-draw PPP loan. This priority period will last two weeks, until March 10th, and then PPP loan applications will open to all eligible businesses.
Additional rules are set to take effect on Monday, March 1st. One change expands eligibility for PPP loans to non-citizen US residents and to small business owners with prior felony convictions or delinquent student loan debt. Another rule change alters the way that PPP loan amounts are calculated for sole proprietors. Loans to these small business owners will be based on gross income rather than net income.
If your business is not eligible for a PPP loan under the new rules, there are alternatives. SBA 7(a) loans can be used for a wide variety of business expenses or expansions. The Main Street Lending Program is also expected to become active soon and could be an option for businesses looking to borrow at least $250,000. Your business can also seek a traditional business loan from an online lender.
The PPP loan application must be entered through a PPP lender approved by the Small Business Administration (SBA). Kabbage and Biz2Credit are among the top small business lenders that can help you apply for a PPP loan.
The PPP program was infused with $284 billion in new loan funds as of December 2020. These funds will expire on March 31, 2021, or whenever the funds are fully loaned out. As of January 19, 2021, all SBA lenders can help you apply for a PPP loan.