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A Comprehensive Guide to the Paycheck Protection Program

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A Comprehensive Guide to the Paycheck Protection Program

On the US flag, there is cash and a picture of capitol hill. "Stimulus Bill" is written. Depicting bills passed to help small businesses.

Table of Contents

On March 27, 2020, the U.S Federal Government signed the CARES Act into law. This contained, among other things, a new stimulus package for small businesses. President Biden announced changes to the Paycheck Protection Program, established by the CARES Act, on February 21, 2021, including extending the deadline to apply.


Here’s a comprehensive guide to understanding the Paycheck Protection Program, the application, and the loan forgiveness process.

How Does PPP Work?

The Paycheck Protection Program first rolled out on March 27th, 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act, commonly known as the CARES Act. The $349 billion loan program was developed to aid businesses impacted by COVID-19, enabling them to retain workers and cover operating costs. Loans are 100% federal-guaranteed and will be forgiven under certain conditions.

What are the latest changes to the PPP?

Since it was introduced, the PPP program has been amended several times to offer more relaxed guidelines and new provisions. Here’s a brief timeline of how it’s evolved so far:

  • April 25, 2020 - expanded with an additional $310 billion in funding and modified to allow business owners more flexibility.
  • June 5, 2020 - amended, loosening many of the restrictive guidelines around loan forgiveness, plus allowing for payroll tax deferments.
  • July 4, 2020 – amended, extending the deadline for loan applications from the original date of June 30, 2020 to August 8, 2020.
  • December 27, 2020 - reopened and modified, allowing for new PPP loans, as well as Second Draw PPP loans for eligible businesses. The deadline to apply is March 31, 2021.
  • February 22, 2021 - amended to provide access to businesses that previously struggled to obtain PPP loans, deliver funding more efficiently, as well as prevent fraud and abuse.
  • March 11, 2021 - increased funding by $7.25 billion and allowed more non-profits to be eligible.
  • March 30, 2021 - extended PPP to May 31, 2021, plus an additional 30-day period for the SBA to process pending applications.

Is the PPP loan still available?

Yes, the Paycheck Protection Program is still available. New legislation has been introduced extending the PPP deadline until May 31, 2021.

Who qualifies for PPP?

  • Businesses with fewer than 500 employees, including non-profits, veterans' organizations, tribal concerns, sole proprietorships, self-employed, and independent contractors.
  • Restaurants, hotels, franchises, and other accommodation and food service businesses that have 500 or fewer employees in each location.
  • Businesses must have been in operation on February 15, 2020 and must not be closed permanently.
  • What is the deadline for the PPP loan?

    The deadline for the PPP loan is May 31, 2021 according to new legislation.

    What are the PPP loan forgiveness terms?

    • The covered period for PPP loans is the 8-to-24-week period following disbursement from the lender.
    • In order for First Draw PPP loans or Second Draw PPP loans to qualify for forgiveness the borrower must meet the following requirements during the 8-to-24-week covered period:
      1. Maintain employee and compensation levels.
      2. Use the loan proceeds for covering payroll costs and other eligible expenses; and
      3. Spend at least 60% of the proceeds on payroll.
    • For any amounts not forgiven, the maximum term is 10 years, with a maximum interest rate of 4%.

    Are loans 100% guaranteed by the Federal Government?

    No collateral or personal guarantee shall be required for the covered loan.

    Lenders will not be determining eligibility based on repayment ability, but rather whether the business was operational on February 15, 2020 and has paid employees and payroll taxes.

    How did the Biden Administration alter the PPP plan?

    On February 22, 2021, President Biden made changes to provide access to small businesses that previously struggled to obtain PPP loans. To advance equity goals, deliver funding more efficiently, as well as prevent fraud and abuse, the following reforms were announced:

    • Beginning February 24th, the SBA established a 14-day, exclusive applications period for businesses and nonprofits with fewer than 20 employees.
    • Sole proprietors, independent contractors, and self-employed individuals will receive more financial support. The PPP funding formula has been revised to support these categories.
    • Small business owners with prior non-fraud felony convictions will no longer be restricted from PPP access.
    • Small business owners with delinquent student loan debt will no longer be disqualified from participating in the PPP program.
    • Small business owners who are non-citizen lawful U.S. residents may use Individual Taxpayer Identification Numbers (ITIN) to apply for PPP loans.

    On March 11, 2021, Congress passed the American Rescue Act, also known as HR 1319, a $1.9 trillion COVID-19 relief package. This new legislation included the following programs to aid small businesses:

    • The Restaurant Act will allocate $28.6 billion in pandemic assistance grants for restaurants and bars. Funding must not exceed $5 million per individual restaurant, and $10 million per restaurant group. Grants will be handled by the Small Business Administration and used to cover payroll, rent, utilities and other expenses.
    • Increased funding for the PPP Program. An additional $7.25 billion has been allocated for the PPP program. The program has also allowed more non-profits to be eligible for forgivable loans.
    • New legislation to extend the deadline to May 31, 2021.

    How do I apply for the SBA PPP loan?

    • Apply at any participating SBA approved lender, plus lenders approved by the Department of Treasury.
    • Find an SBA approved lender near you by visiting
    • If you need additional assistance, please contact your local Small Business Development Center, Women’s Business Center, SCORE chapter, or SBA District Office.

    What are the qualifications for a first PPP loan?

    If your business meets the following qualifications, you are eligible to apply for your first PPP loan in 2021.

    • Your business was operational before February 15, 2020. Your business is still open and operational.
    • You have no more than 500 employees.
    • If your business has multiple locations, you have no more than 500 employees per location.
    • Current economic uncertainty has made a PPP loan necessary to sustain your business.

    What are the qualifications for a second PPP loan?

    If your business received an initial PPP loan, you may qualify for a second round of funding. You must meet the following requirements:

    • You have used the whole of your first PPP loan.
    • You have no more than 300 employees.
    • Your business was operational before February 15, 2020.
    • Show a 25% or greater reduction in gross revenue.

    What documents do I need for a PPP loan?

    You will need to submit a myriad of documents for both the application and the forgiveness process. Below is a comprehensive list of the documentation required.

    1. Recordkeeping and required documents for forgiveness
    2. In all cases, you should be prepared to provide bank account statements, a photo ID, and your SBA loan number located on your Promissory Note when applying for PPP loan forgiveness. You should also be prepared to provide documentation verifying eligible expenses from the loan’s covered period.

    3. Payroll documentation required to be eligible for forgiveness
      • Any bank account statements or payroll service provider reports showing the amount of cash compensation that was paid to employees.
      • Any tax forms (or payroll reports) for the periods dating back to the period that overlaps with the covered period.
      • Payroll tax filings, such as IRS Form 941, that will be reported to the IRS. Any state quarterly employee wage reports, business reports or unemployment tax filings that have been submitted or will be submitted.
      • Any payment receipts related to employee costs, including cancelled checks account statements, statements documenting employer contributions to employee group health insurance, life insurance, dental insurance, disability insurance, and retirement plans.
    4. FTE Documentation Showing Average Number of Employees
      • Documentations showing the average number of FTE (Full Time Equivalent) employees on payroll per week between February 15, 2019 and June 30, 2019.
      • Documentation showing the average number of FTE employees on payroll per week between January 1, 2020 and February 29, 2020.
      • For seasonal employers, documentation should show the average number of FTE employees on payroll per week between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive 12 weeks between February 15, 2019 and February 15, 2020.
      • FTE documentation may include payroll taxes reported or will be reported to the IRS, state business and individual employee wage reporting, and unemployment insurance reporting to the IRS.
    5. Documents for mortgage, rent, and other eligible expenses
      • Mortgage, rental or lease payments for business, including mortgage amortization schedule, loan statements, lease agreement, receipts, cancelled checks or lessor account statements.
      • Utility bills for business, including copies of invoices and documents verifying eligible payments made from February 2020 and payments during the covered period.
      • Operating expenses during the covered period, including copies of invoices, supply orders, purchase orders. Plus, documents verifying eligible payments.
      • Property damage costs related to vandalism or looting that occurred during 2020 that were not covered by insurance. Include copies of invoices, cancelled checks or other documents verifying eligible payments, plus documents showing costs related to damage occurring during 2020.
      • Supplier costs, including copies of invoices or orders in effect before and during the covered period. Plus, copies of receipts or other documents verifying eligible payments, plus documents that expenses were used to comply with COVID-19 guidance during the covered period.
      • Worker protection expenses. For example, plexiglass protective barriers or personal protective equipment used to comply with COVID-19. Include copies of invoices or other documents verifying these eligible payments, plus documentation that expenses were used for worker protection during the covered period.
    6. Documents that must be retained for six years
    7. In addition to submitting the above documents with the forgiveness application, the borrower must maintain related certifying records for six years, such as gross receipt reduction for a Second Draw PPP loan, plus documentation to support the borrowers loan forgiveness application. Additionally, the borrower must provide documentation to the lender to satisfy any federal or state regulatory requirements.

      • Documents supporting PPP Schedule A worksheets, including employee documentation.
      • Documents supporting employee job offers, firings, refusal to accept reduced work hours, resignations, or borrower’s inability to hire similar workers for qualified positions.
      • Documents supporting the business inability to operate between February 15, 2020, and the end of the covered period at the same level as before due to compliance with any required sanitation or safety guidance issued regarding COVID-19.
      • Documents supporting Schedule A Worksheet “FTE Reduction Safe Harbor 2.”

    PPP loans for Partnerships and Self-Employment

    The Biden Administration has modified the PPP Program so more self-employed individuals, independent contractors and sole proprietors are eligible for loans. Typically, businesses must calculate their eligibility based on IRS 1040 Schedule C entry for “net profit”.

    PPP forgiveness for sole proprietors

    Since many sole proprietors do not have employees, this often limits their eligibility. Going forward, new IRS 1040 Schedule C filers will be able to calculate their loan amount by gross income. The SBA is also setting aside $1 billion for non-employer Schedule C applicants considered in low-to-moderate income census tracts.

    PPP forgiveness for self-employed individuals

    The Biden Administration also modified the PPP Program so self-employed individuals can now use a simplified forgiveness application form. Form 3508S applies to you if your loan amount is $150,000 or less.

    If your loan was over $150,000, and you have employees, you can use Form 3508EZ so long as you did not reduce your FTE (full time employee) headcount or their salaries and wages by more than 25%. Otherwise, you must use the standard forgiveness form.

    PPP forgiveness for partnerships

    If your business is a partnership or S or C corporation, you fall under entity-specific loan forgiveness rules that apply to you as an owner-worker in the business.

    However, these rules do not apply to the rank-and-file employee group. Rank-and-file employees are junior-level employees, without ‘management’ in their title. The government puts you into the “owner-employee” category, which limits your PPP benefits.

    The four categories of owner-employees are: 1) general partners in partnerships; 2) S corporation shareholder employees; 3) C corporation shareholder employees; and 4) Form 1040, Schedule C filers. If you are the sole owner or part owner of your business, then you fall into one of these categories.

    What to do if you are denied approval

    If for some reason you do not qualify for a PPP loan or are denied approval, you may qualify for other federal relief programs. The SBA also offers EIDL (Economic Injury Disaster Loans), Debt Relief Loans, plus several grant programs.

    How will PPP loan forgiveness affect my taxes?

    Under most circumstances, a forgiven loan would qualify as income. However, Congress has exempt forgiven PPP loans from being taxed. Businesses are not taxed on the proceeds of a forgiven PPP loan, and as such, the expenses covered by the loan's proceeds are not deductible. Since the taxpayer did not have to pay these expenses out of their own pocket, there is neither a tax penalty nor a tax benefit.

    There is one caveat to consider. Some states are still on track to tax this as income. All states use the Internal Revenue Code as the baseline for their own tax code, but they still have the authority to make their own adjustments.

    Additionally, if the business expects the PPP loan to be forgiven at a future date, any expenses covered by the loan are not deductible, regardless as to whether the business has filed for forgiveness or not. Yet, a business can deduct these expenses if the PPP loan was expected to be forgiven and then it is not.

    For specific details relating to your business, contact your local SBA lender.