(Disclaimer: Payability is NOT offering PPP loans directly. We partnered with SmartBiz, a trusted and vetted partner, to offer PPP to our customers and community. Please direct all applications and questions to SmartBiz. The availability and eligibility of PPP loans remains subject to SBA guidance and other factors. The information provided below is for educational purposes only. Please consult the SBA’s website for official rules and the most current guidance.)
During the pandemic, PPP loans have been a much-needed financial relief for small businesses who are trying to operate under strict health protocols and changing consumer behavior. A PPP loan has helped many businesses keep their doors open and their employees paid as they adjust to a “new normal” of doing business.
In this new round of dunning, the SBA expanded how business owners can use their PPP funds, while continuing to focus on payroll costs and related expenses. And, borrowers who received a previous PPP loan may also be eligible for a second one.
In this article, we cover the latest PPP loans updates and what it means for your online business.
What is the Paycheck Protection Program?
For a quick refresh, the Paycheck Protection Program (PPP) is an SBA loan that helps businesses keep their workforce employed during the pandemic. These loans can be used to help fund payroll costs, including benefits, and other major costs related to COVID-19. The SBA will also forgive the loans if the borrower meets all employee retention criteria.
PPP loans were first approved for small businesses on March 27, 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
On January 8, 2021, the SBA announced they were re-opening the PPP for applications starting the week of January 11, 2021 for new borrowers and certain existing PPP borrowers. This re-opening authorizes up to $284 billion toward job retention and certain other expenses through March 31, 2021 for small businesses, including eCommerce, that are most impacted by COVID-19.
To date, the Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs.
Read the full announcement for the new round of PPP loans from the SBA here, which includes these key updates to the program in this round:
- Borrowers can now set their PPP loan covered period between 8 to 24 weeks
- Loans will cover additional expenses (see full list below)
- Expanding the program’s eligibility to include more organizations like 501(c)(6)s
- Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount
- Certain existing PPP borrowers are now eligible for a Second Draw PPP loan
Who’s Eligible for PPP Loans
With this new round, your eCommerce business could qualify for an initial or second PPP loan under these circumstances.
First Draw PPP Loan Details
An eCommerce business is generally eligible for an initial (First Draw) PPP loan if:
- In Operations on February 15, 2020
- Have not previously received a PPP loan
- Has no more than 500 employees
See full eligibility requirements here.
Second Draw PPP Loan Details
An eCommerce business is generally eligible for a Second PPP loan if:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
- Has no more than 300 employees
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
See full eligibility requirements here.
PPP Loan Amounts and Terms
If eligible, these are the max amounts lended and terms for your PPP loan, regardless of lender or borrower.
First PPP Loan Max Amount: 2.5X Average monthly payroll costs, up to $10 million.
Second PPP Loan Max Amount: 2.5X Average monthly payroll costs, up to $2 million.
You can work with your lender to understand what your max amount is, or calculate it yourself using this SBA guide.
Otherwise, the PPP loans terms include:
- 100% federally guaranteed
- Low interest rates of 1%
- 2-year term (before June 5th) and 5-year term (after June 5th)
- No collateral (like your house or car) required
- No fees from the government or lenders
If you apply for loan forgiveness: Loan payments will be deferred until SBA remits the borrower’s loan forgiveness amount to the lender.
If you don’t apply for loan forgiveness: Loan payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
We’ll cover more about applying for loan forgiveness below.
How to Use Your PPP Loans
eCommerce business owners can use their PPP loan to cover eligible expenses such as:
- Payroll Costs
- Insurance benefits
- Employee salaries and/or commissions
- Rent & lease agreements and/or mortgage payments
- Software or cloud computing costs for business operations
- Worker protection expenses to help meet safety requirements
- Covered property damage expenses
- Supply costs that are essential to business operations
Using your PPP loan for these expenses ensures you can apply for and receive full loan forgiveness for them.
How to Apply for PPP Loan Forgiveness
Online business owners can apply for full (or partial) forgiveness for their PPP loan if they meet these requirements:
- Loan proceeds are used on payroll and other eligible business expenses
- Employee and compensation levels are maintained
- Minimum of 60% must be used on payroll costs
It’s important to note that PPP loan forgiveness is NOT automatic. You must submit a request for loan forgiveness through the lender you applied for your PPP loan with. Further, the application for forgiveness is due within 90 days of the expiration of your post-funding period.
You will work with your lender to understand the loan forgiveness process for your individual business. In the case that your loan is not forgiven, you’ll be responsible for paying back the loan with a 1% interest rate.
Please refer to SmartBiz or your local lender if you applied and have additional questions.
How to Apply for a PPP Loan
At this time, you must apply for an Initial or Second PPP loan by March 31, 2021. To start, the SBA will also only accept applications from participating community financial institutions (CFIs). The program will reopen to all lenders shortly after.
When applying for a PPP loan, you can expect to provide the following documents:
- Legal business name, address, and phone number
- Business and personal tax returns
- Business bank statements
- Payroll history report (some payroll providers provide these reports for you)
- Demonstration of how COVID-19 has impacted your business
If you’re interested in applying for a PPP loan, consider Payability’s partner SmartBiz, who has specialized in SBA loans since 2013 and network of banks has funded nearly $4 billion in SBA, PPP, and bank term loans.
Don’t wait! It’s important to apply ASAP. The approved PPP funds are set to end on March 31, 2021 and the first round ran out before the end date.