Using the Paycheck Protection Program to Support Your Small Business

Using the Paycheck Protection Program to Support Your Small Business

Using the Paycheck Protection Program to Support Your Small Business

In March 2020, the world went into lockdown as fears over COVID-19 escalated. Businesses around the world were closed, and most people were stuck in their homes for weeks, only leaving for essential reasons, such as grocery shopping or medical care.

Some companies were able to continue most of their operations online, while others that relied on on-site customers, such as hair salons, restaurants, and clubs, saw their revenues drop to zero.

What Is the Paycheck Protection Program (PPP)?

As a result of the losses generated by businesses, the federal government instituted the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March of 2020.

The CARES Act instituted several relief programs, and one of those was the Paycheck Protection Program (PPP). The PPP provided small businesses with eight weeks of cash-flow assistance through federally guaranteed loans. [1]

After its inception, the PPP program was funded a second time. Borrowers who initially obtained a PPP loan were eligible for a second loan if they saw a 25% reduction in gross receipts in the same quarter between 2019 and 2020 and had no more than 300 employees. They also must have used their initial loan under the first PPP draw only for approved purposes. [2]

The PPP program ended May 31, 2021, but companies that obtained loans under the program may still apply for loan forgiveness for their PPP loans through the SBA.

What Can a PPP Loan Be Used for?

The PPP loan program was intended to provide companies, sole proprietors, independent contractors, and other small businesses with access to cash to pay their employees who were unable to work due to COVID-19 restrictions.

At least 60% of the loan was required to be used for payroll and employee benefits. The remaining loan balance could be used to cover any of the following:

  • Mortgage interest payments
  • Rent
  • Utilities
  • Operations expenses, such as company software or vendor payments

Companies that complied with the lending requirements 100% can have their loans fully forgiven on a tax-free basis.

The strict requirement that the loan go mostly towards salary expenditures was intended to ensure that employees did not go unpaid during lockdowns when they were unable to work. Payroll costs included salaries for employees up to $100,000, employee benefits for vacation and family leave, healthcare benefits, and any retirement payments. [2]

How Does a PPP Loan Work?

The maximum loan amount provided through the PPP program was $2 million and was calculated based on a company’s monthly average payroll cost for 2019 or 2020. The monthly average could be multiplied by 2.5 to obtain the maximum benefits. [2]

Businesses in the food or accommodation industries were eligible for amounts equal to 3.5 times their average payroll costs per month. [1]

Thus, if the average monthly payroll for a restaurant was $80,000 in 2019, the restaurant could apply for a loan of up to $280,000. However, if a company operated outside the restaurant or accommodation industries, the maximum loan with the same monthly average payable was $200,000.

How Do I Apply for a PPP Loan?

While the PPP loan program is no longer available as of May 31, 2021, a certain process had to be followed to qualify for a loan. [2]

In particular, specific information was required:

  • Evidence that economic uncertainty had an impact on the business
  • Verification that the funds would be used to pay employees their normal salaries, as well as for business expenses such as rent or utilities
  • Documentation of employees on payroll and their costs
  • Evidence of mortgage payments, rent, and utilities for six months before the date of the loan application
  • Tax returns for the company

For applicants seeking a second PPP loan, evidence of exhausted funding from the first loan had to be presented. [2]

Payroll documentation could be proved using payroll processor records, tax filings, 1099-MISC reports, or Schedule C for a sole proprietorship. [2]

How Do I Obtain PPP Loan Forgiveness?

If you’ve obtained a PPP loan, you can apply for forgiveness within the ten months after your covered period has ended. However, keep in mind that at least 60% of the loan must have gone to employee payroll and benefits.

All expenses related to the below are eligible for loan forgiveness:

  • Payroll expenditures, including salaries or wages, benefits such as health insurance, sick or vacation leave, and bonuses
  • Mortgage interest for mortgages
  • Rent payments for the business
  • Utility expenses, such as electricity, water, and sewer
  • Operations expenses, including software required for the business
  • Vendor costs on expenses that were obtained before receiving the PPP loan
  • Expenses related to making the workplace COVID-19 safe

Expenses that did not fall into one of these categories do not meet loan forgiveness qualifications. [1]

In addition, if a company has laid off any employees after receiving a PPP loan, the amount of forgiveness that they qualify for is reduced. The reduction in loan forgiveness is equivalent to the proportion of employees laid off. If any staff has received a reduction in their paycheck, the amount of forgiveness is similarly reduced. [1]

Business owners who laid off employees but then rehired them once the company was able to reopen or who refunded their employees by the amount of their reduced paycheck can fully qualify for loan forgiveness. [1]

PPP loans that are forgiven are not considered taxable income. Expenses that were covered through the use of a PPP loan will remain deductible on tax returns.

The Current Status of the PPP Program

While the COVID-19 pandemic remains ongoing, the availability of vaccinations has reduced the impact and severity of the coronavirus. As a result, most businesses have fully reopened.

The PPP program is now fully closed to new applicants, but companies that took out a PPP loan may still qualify for loan forgiveness programs. If new variants of COVID-19 emerge, further lockdowns may be required, and the PPP program may reopen. But for now, it’s business as usual.


[1] What is the Paycheck Protection Program? (A Simple Guide) | Bench Accounting
[2] Second Draw PPP loan (

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