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The U.S. Small Business Administration (SBA) has put real emphasis on "small" by prioritizing delivery of Payroll Protection Program (PPP) emergency loans to companies with 20 employees or fewer and expanding loan eligibility to contract workers and sole proprietors.
PPP loans originated in the CARES Act passed in March 2020, as one of many measures aimed at helping small businesses hurt by the COVID-19 pandemic. A second round of PPP loans was authorized in the COVID relief law enacted in December 2020.
As with the initial PPP loans, the new pool is available to companies with 500 employees or fewer who haven't yet received a PPP loan, or to companies with no more than 300 employees who received loans in the first round.
In late February, however, the SBA announced measures aimed at expanding access for the nation's smallest small businesses:
For a two-week period ending at 5 p.m. Eastern time on March 9, the SBA will only accept PPP loan applications from companies with no more than 20 employees.
Beginning March 1, SBA further revised eligibility requirements to:
- Expand PPP eligibility and increase availability of PPP funds for sole proprietors, independent contractors and self-employed persons.
- Eliminate a ban on PPP access for small business owners with prior non-fraud felony convictions.
- Expand PPP access for small business owners burdened by federal student loans, by removing a rule prohibiting PPP participation by business owners with delinquent or defaulted federal student loans.
- Enable PPP access for non-citizen business owners residing legally in the U.S., by allowing use of an Individual Taxpayer Identification Number (ITIN) when applying for PPP loan relief.
PPP Eligibility and Application Process
PPP loan amounts can be up to 2.5 times the company's (or sole proprietor's) average monthly payroll costs, with a cap of $100,000 on any employee's annual salary. Loans are administered through the SBA, but issued by private financial institutions, including community banks and larger commercial lenders.
Eligibility for a Second PPP Loan
Recipients of first PPP loans issued in 2020 may be eligible for additional "second-draw" loans of up to $2 million, but must meet requirements including:
- Applicants must have no more than 300 employees.
- Applicants must have used all of their first PPP loan before the date the second PPP loan is issued, and that amount must have been used on eligible expenses.
- Applicants must provide evidence that company revenue decreased by at least 25% in all or part of 2020 relative to a comparable time period in 2019.
Loan Forgiveness Eligibility
Recipients of first- and second-draw PPP loans may apply for loan forgiveness if they meet (and can document) the following requirements:
- Employee headcount and compensation levels must be maintained at the levels they were at when the loan was issued.
- Loan proceeds must only be spent on payroll costs and other eligible expenses.
- At least 60% of loan proceeds must go toward payroll costs.
The SBA's PPP website offers additional information on PPP loan and forgiveness eligibility, and tools for pairing you with a local lender that can process your loan application and issue PPP loans.
Additional Small Business Resources
Other resources for small businesses seeking COVID-19-related relief include:
- COVID-19 U.S. Business Risk Index
- SCORE Small Business Resilience Hub
- U.S. Chamber of Commerce Coronavirus Small Business Resources Guide
- NFIB Small Business Resources in Response to Coronavirus
- Small Business Development Centers COVID-19 Resources for Small Businesses Guide
- Inc.'s Free Tools, Resources, and Financial Help for Business Owners Hit by Covid-19