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  • Mike Kern, CPA

Understanding the Paycheck Protection Program Loan

Updated: Apr 5, 2020

The current economic climate we find ourselves in is a dire one. We are in the midst of a pandemic, the economy has been tanking, unemployment claims have absolutely crushed previous records (see below), and businesses are struggling to retain employees and stay open.

Given all of this, the government is responding boldly with a 2 trillion dollar relief package to help bridge the gap until the pandemic ends and people are able to go back to work. It is more than likely that other packages are coming in the near future. But for now, I want to focus on the main small business provision of the Coronavirus Aid, Relief, & and Economic Security (CARES) Act - the Paycheck Protection Program (PPP) loan. In case you want every single detail check out this fascinating 31-page pageturner! If you just want the big picture, I summarized the most important parts below.

What is the PPP Loan?

The PPP Loan is a special provision in the CARES Act that allows businesses to take out a loan with an SBA (Small Business Association) approved lender, up to 2.5 times their average monthly payroll for the past 12 months. The most intriguing aspect of this loan is a loan forgiveness provision for up to 8 weeks of payroll (only includes up to $100,000/employee), rent, mortgage, & utilities cost. That means if you get the loan and spend it on 8 weeks of payroll, rent/mortgage, & utilities, that portion will essentially turn into a grant and not need to be repaid.

Is the forgiveness amount limited?

Yes, the amount forgiven may be limited. If your headcount has decreased or you have cut your employees’ pay by > 25%, your amount forgiven will be decreased proportionately. The government is trying to incentivize small businesses to retain their employees at the same pay throughout this period, and that’s why the forgiveness amount may be limited if you decrease your headcount / cut pay.

Who is eligible for this loan?

  • Small Business & Non Profits with less than 500 employees

  • Sole proprietors

  • Independent Contractors

  • Veterans organizations

Is there a personal guarantee or collateral required?

No, there is no personal guarantee or collateral required for these loans.

How & where do I obtain this loan?

This loan is given out by any SBA-approved lender. The best place to start would be with your business bank. Ask them if they are an SBA-lender, and what information they have about the PPP application process. You will most likely fill out an online or in-person application and be contacted by the bank for more information. The application process is very straightforward and simple.

What information will I need to apply?

The exact documentation is not 100% clear yet. You will most likely need all of your personal & business information such as EIN, address, and business type. You likely will also need your business’ financial information, including (but not limited to) last year’s Gross Revenue, COGS, & Net Income. Pull your payroll documentation for the last 12 months and calculate your average monthly payroll. Make sure you have employee headcount numbers as well.

What is the time-frame of the loan and what is the interest rate?

For the unforgiven portion, the loan must be paid back in 2 years at a 1% interest rate. However, payments are deferred for 6 months past the loan origination date (but interest will be accrued over this deferment period).

Any other information I need to know?

In order to obtain the loan, you will need to make a “good faith” certification including (but not limited to):

  • You were in business as of 2/15/20 and had employees or independent contractors you paid as reported on Form 1099-MISC

  • Current economic uncertainty makes this loan request necessary to support your ongoing operations

  • The funds will be used on payroll, rent, mortgage, or utilities

  • You have not received another loan under this program

  • You have appropriate documentation to prove your costs during the loan

  • All information reported on the application of the loan and thereafter is correct

The PPP loan is not the only SBA loan available to you. There is another one called the Economic Injury Disaster Loan (EIDL) which has its own facts and circumstances that may be of benefit to you. One of the biggest facets of this loan is an up-to-$10,000 loan advance that may not have to be repaid. Here is some more information regarding that loan.

Obtaining an SBA loan may be critical to the current success of your business. Unfortunately, many small business owners don’t have a structured accounting system in place. This is going to greatly hinder their ability to pull accurate financial data that is necessary for applying for these loans in a timely manner. (Not to mention, you can’t make educated decisions pertaining to the financial future of your business!) If you’re in this boat, this is the perfect time to get your finances back on track. It may just save your business. We can help you!

Understanding how these loans work and how to obtain them can be complicated - but that's why we are here! If you have any questions or would like to discuss your options, please feel free to reach out to us at

Mike Kern, CPA


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