How to get a small business loan under the Payroll Protection Program

Q: How do I apply for a small business loan through the Paycheck Protection Program?

The application has been posted on the Treasury Department’s CARES Act resource page. After you gather the information described on the application form you should contact your bank to start the application process.

The Small Business Administration (hereinafter “SBA”) has a network of at least 1,800 approved lenders that process small business loans. SBA is working on a geo-coded web page where you can view approved lenders in your location.


Q: When will the new funding be made available to small businesses?

The loans will be made available starting Friday, April 3, 2020. Detailed application guidelines are also available on the Small Business Administration’s website.

The initial crush of applications will be limited to small businesses and non-profits. Loans for sole proprietors and independent contractors will see at least one week of delay. Administration officials say they are setting up a system in which borrowers will be able to receive funds on the same day they submit an application. Since the initial steps of the approval process will be handled entirely by the lender, there is no separate review being conducted by the SBA.

The application has been really stripped down from what is normally used by the SBA.

Even with the SBA’s review out of the way, same-day approvals will still be a challenge. The fastest bank loan applications usually incorporate a one week review.

It is expected banks will have a hard time cutting their processes to get money out the door this fast.


Q: What costs will the new loans cover?

The new loans will cover payroll costs and employee benefits, mortgage interest incurred before February 15, 2020, rent and utilities under lease agreements in force before February 15, 2020 and utilities for which the service began before February 2020.

Payroll costs include salary wages, commissions and tips capped at $100,000 for each employee. It also includes benefits for vacation, parental leave, medical leave, sick leave, some other limited benefit categories. In some cases they also can cover interest on other debts.


Q: How do I prove that my losses are because of coronavirus?

The new loans are available to any business for which “current economic uncertainty makes the loan necessary to support your ongoing operations,” according to an SBA fact-sheet published Tuesday. Approved lenders will make a determination of need for your business based on SBA guidelines, but without a separate SBA review. The SBA is preparing to publish specific regulations that might better-define eligibility requirements. That SBA is preparing to publish specific regulations that might better-define eligibility requirements. That regulation is expected to be finalized in the next few days.


Q: Which businesses qualify under the Paycheck Protection Program?

Small businesses, nonprofits, tribal business concerns that meet the SBA’s standard business size definition and veterans organizations organized under 501(c)I19) with fewer than 500 employees are eligible for loans under the program. Self-employed individuals, independent contractors and sole-proprietors also are eligible. To receive a loan, your company must have been in business as of February 15.

It is yet to be determined whether churches and other faith-based organizations qualify for loans under the nonprofit category.

If you are in the food service business, the 500-employee cap is applied on a per-physical-location basis, according to a fact sheet published by the U.S. Chamber of Commerce.

There are criminal penalties of up to $1 million for submitting fraudulent information to a federally-insured lender.


Q: I work as a sole-proprietor or independent contractor. Can I receive a loan through the Paycheck Protection Program?

Yes. The law specifically provides for sole proprietors and independent contractors. Loans for independent contractors are likely to be made available one week after the other small business loans, which would translate to a start date of April 10 for those loans.

The SBA is working on a detailed regulation that will define how independent contractors should apply for loans, including whether their company should count them in its employee totals on loan applications. That regulation is also expected to address the status of 1099 employees and part-time employees. That regulation is expected to be finalized before April 3, 2020.


Q: I run a small partnerships or S-corporations. Am I eligible?

The SBA is working on a detailed regulation set guidance for these businesses.


Q: How much money can my business receive through the new loan program?

The Paycheck Protection Program provides small business loans of up to $10 million to cover payroll and certain other expenses, or 2.5 times your total payroll expenses for the loan period. Other SBA loan programs, including the federal disaster relief program, offer much smaller loans.


Q: What sort of thing could disqualify me?

The application includes a long list of potential disqualifying factors. You cannot receive a paycheck protection program loan if your business or any of its owners have previously been suspended, debarred, proposed for debarment, declared ineligible, or were voluntarily excluded from the loan program by a federal agency, or are presently involved in any bankruptcy.

You will be excluded from the program if you have ever taken a loan from the SBA that subsequently caused a loss to the government, is currently delinquent, or resulted in default. The application also excludes businesses in which any 20 percent owner is an individual who is currently subject to criminal charges, or who has previously been convicted or otherwise punished for a crime against a minor.


Q: What information should I prepare?

You will be asked to provide basic identifying information for your business, your business TIN number, your average monthly payroll, the number of jobs supported by your company and what specifically you want to use the loan money for. You will also be asked to list all owners who hold at least a 20 percent ownership stake in the company and affirm that they are not party to federal crimes.

You will also be asked to provide the lender with documentation regarding your employee headcount over time as well as your payroll costs.


Q: What time period is covered by Paycheck Protection Program loans?

The new loans apply to costs incurred from Feb. 15 through June 30.


Q: What’s the interest rate?

The Treasury Department is initially setting the loan rate at 0.5 percent. However the CARES Act caps the interest rate for the Paycheck Protection Program at 4 percent, so it is possible the interest rate could increase.


Q: What will the payment schedule look like?

The first payment will be due after six months and the full loan will be due after two years, according to SBA informational materials.


Q: It looks like there are a lot of different federal loan programs. Can my business receive funding through more than one?

Yes. Businesses that have pending or existing SBA disaster assistance loans can still receive funding through the Paycheck Protection Program as long as the loans are not being used for the same thing. You also can still apply for a loan if you have an insurance claim pending. A single business cannot apply for more than one Paycheck Protection Loan, however.


Q: What if I’m still paying off a different SBA disaster loan?

The Small Business Administration has made all deferments through Dec. 31 automatic. That means small-business owners do not have to contact the SBA to request deferment. If you have an existing or pending loan through the SBA’s disaster assistance loan program, you can refinance it into your Paycheck Protection Program loan, possibly lowering your interest rate.


Q: Can the loan eventually be forgiven?

Yes. The program includes loan forgiveness covering costs for the first eight weeks of the loan for companies able to keep employees on payroll or continue paying bills throughout the coronavirus crisis.

The amount of loan forgiveness will include payroll costs for individuals below $100,000 in annual income, mortgage and rent obligations, including interest and utility payments. If an employee is above a $100,000 annual salary, the first $100,000 will be factored into the company’s loan forgiveness total but any amount above that will not. As of Wednesday morning the SBA had not decided whether benefits will factor into that cap.

The total amount of forgiveness will be reduced if your workforce is drawn down through attrition or if wages are reduced. If you are forced to lay off employees because of economic conditions, you may be able to preserve some of your loan guarantee by hiring them back.

It is expected that at least 75 percent of the costs forgiven come from payroll, according to the SBA fact-sheet released Tuesday.

Eligibility for loan forgiveness starts eight weeks after the loan origination date. There is a maximum 10-year maturity after application for loan forgiveness.


Q: If I receive a salary as a sole proprietor, independent contractor, limited liability partnership, or other business that I own, can I count my own salary towards loan forgiveness?

To be determined. SBA administrators will be addressing this in future SBA regulations. In any case the $100,000 cap for loan forgiveness would likely apply. This post will be updated as new information becomes available.


Q: This article did not answer my question. How can I find more information?

Your primary points of contact for information on federal loan programs should be the U.S. Small Business Administration or an SBA-qualified financial institution. You can reach the SBA by email at [email protected] or by phone at 1-800-827-5722. The agency has reported receiving “unprecedented” interest in its loan program in recent weeks but is working to set up new call centers to handle the flood of new inquiries.

The Treasury Department has also posted its own fact-sheet on the program on its CARES Act resource page. Several business groups also have published fact sheets on the SBA’s loan programs, including the Economic Innovation Group and the U.S. Chamber of Commerce.