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From eligibility criteria to amount of funding provided, these are the most commonly asked questions pertaining to the loans being offered to struggling small businesses. — Getty Images/fizkes

One of the largest parts of the U.S. government’s response to COVID-19 disruptions for businesses was the creation of the Paycheck Protection Program (PPP). This program has distributed more than $350 billion in loans to businesses and still has more money to give. However, many small businesses are still struggling to navigate complex aspects of the PPP, such as eligibility and forgiveness.

In order to bring more clarity, we’ve compiled some of the most popular questions that have been asked and answered during our National Small Business Town Halls from Inc. and the U.S. Chamber of Commerce. These events have featured expert commentary on PPP and other issues facing small businesses during this uncertain time.

Here are 20 popular questions businesses have been asking about PPP.

How does the Paycheck Protection Program (PPP) work?

The emergency loan program, part of the CARES Act, is authorized to distribute more than $600 billion in forgivable loans for small businesses. The program originally had just $350 billion allocated, but another $320 billion was added by Congress in April in order to help more businesses. These loans are issued by private lenders and credit unions, and they are backed by the Small Business Administration (SBA). The basic purpose of the PPP is to incentivize small businesses to keep workers on payroll and/or to rehire laid-off workers that lost wages due to COVID-19 disruptions.

How do I apply for a PPP loan?

Businesses can submit an application to SBA-approved private lenders, credit unions, and fintech companies. Businesses should start by talking to any lender they currently work with first to see if they are taking part in the program. If you do not have an existing lending relationship, you may want to apply with a fintech company.

The SBA has created a web portal where you can search for approved lenders by zip code. Additionally, we’ve compiled a list of fintech companies that are participating in the PPP.

What are the loan terms?

The interest rate for PPP loans is set at 1%, and the loans mature after two years. The maximum loan size is $10 million. No personal guarantee or collateral is required.

Do I qualify for a PPP loan?

The PPP offers loans for small businesses with fewer than 500 employees and select types of businesses with fewer than 1,500 employees, as long as those companies have experienced disruptions due to coronavirus. 501(c)(3) non-profits, 501(c)(19) veteran organizations and self-employed workers/sole proprietors are eligible to apply.

Businesses can apply for a PPP loan as long as they were operational on February 15, 2020, and had paid employees at that time (even if the owner is the only employee). The SBA’s 500-employee threshold includes all types of employees: full-time, part-time and any other status.

How can I get my PPP loan forgiven?

The loan will be fully forgiven if at least 75% has been spent on employee payroll. The other 25% can be used for mortgage, rent and utility payments. Forgiveness is based on employers continuing to pay employees at normal levels during the eight weeks following the origination of the loan. Employers must attempt to keep headcount and payroll at the level it was before the pandemic to have the loan fully or partially forgiven.

What can I do to maximize PPP loan forgiveness?

First, carefully document all the ways you spend PPP funds. Second, no matter what else you do, make sure 75% of the loan is spent strictly on payroll. Notably, there may be some leeway on headcount if you document that you tried to hire or rehire and could not get back to where you were on total employees. If you are able to rehire some workers and you spend 75% of funds on payroll, you should be able to get most or all of the loan forgiven.

I applied for a PPP loan. How can I find out about my current status?

There are two major steps for getting a PPP loan: The private lender must approve your application and then the SBA must approve it. If the SBA approves your loan, it will generate a unique loan origination number. If you have that number, you will get a loan. Check with your lender to see if they can tell where your application is in the process and if you have a loan origination number.

My bank has not processed my PPP application yet. Can I apply through another lender as well?

Yes, you can apply for a PPP loan through multiple lenders. But you should only accept one PPP loan.

Will my PPP loan be audited?

Small loans most likely won’t be targeted for auditing as long as you’ve followed all the rules and document your PPP spending. However, all loans above $2 million will automatically be audited. If you are concerned about this, talk it over with your lender before accepting a PPP loan.

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Should I pay employees with PPP even if my business is closed?

Yes, the law was designed to enable businesses to pay workers, no matter if they are performing different tasks outside of their normal job or not even working at all. The idea is to keep workers connected to their employers so that, ideally, once businesses open back up, employers are able to bring workers back to normal duties.

For independent contractors and sole proprietors, how do you document the cash you draw from the PPP loan to have it forgiven? As the intention of the loan is for “payroll,” what can you do if there is no true payroll?

You should clearly document all expenses and maintain a separate PPP account that shows how you are using the PPP money. You want to make the process transparent in order to make it easier for the bank to forgive your loan.

If you have a workforce reduction, are you allowed to increase owner pay to meet the 75% threshold PPP requires?

Yes, you could increase an owner’s pay slightly. But make sure that you are not going over the $100,000 compensation limit and make sure the pay is well documented.

If I normally pay vacation pay and/or a bonus, can I do it now under the PPP program instead of later in the year like I normally would?

Be careful if you think about doing this. If you were normally accruing vacation pay or issuing bonuses during this same period last year, then you should be fine. But if you are doing things differently, this could set off red flags. Operate your systems like you normally do.

If I pay wages to employees that are greater than their average wages over the 8-week period, will I end up having to pay back "excess" wages? (Because a PPP loan is based on 10 weeks of pay, but the allotted time to pay out the loan and qualify for forgiveness is only 8 weeks.)

Basically, you are getting a loan that is worth 10 weeks of normal payroll. Eight weeks’ worth of the money must go to employee wages. The other “two weeks of payroll” should be used for other expenses like rent, mortgage, etc. All of that combined together should get you to near 100% of the loan cost and qualify you for full forgiveness.

I heard that the IRS will be taxing the PPP loans. Is this true?

No, the IRS will not be taxing the PPP loans directly. However, because this is effectively a grant (if the loan is forgiven), the IRS has ruled that expenses that were paid for with PPP loans are not deductible business expenses.

Is it necessary to open a separate banking account to utilize PPP funds?

It is strongly encouraged to open a separate account for PPP funds in order to more easily track where the money is going and to have a better chance of maximizing forgiveness.

Can I add new employees during the eight-week PPP loan forgiveness period and can their payroll be included for forgiveness?

Yes. The PPP has been designed so you can hire or rehire workers to your operation. You can hire new employees in order to get back to the average headcount and payroll of your business and have your loan forgiven.

What should an employer who has received a PPP loan do about an employee who is receiving unemployment insurance that exceeds their normal wages and they don’t want to come back?

An employee has the right to not come back, but you should remind them they’ve officially been offered the job back in writing. Employees that reject documented offers of re-employment “may forfeit eligibility for continued unemployment compensation,” according to the SBA. If an employee refuses to come back, keep documentation in order to show that when you trying to maximize loan forgiveness.

As a small business owner, I’m confused about how we will pay for rent, utilities, etc., when my PPP loan is 75% for employee payroll. The balance remaining based on the formula will not cover rent. What can I do?

The main purpose of the PPP loan is to maintain or rehire employees, so you must spend 75% on payroll. The U.S. government is also offering tax relief to some small businesses to help them improve cash flow. Businesses are encouraged to also look at state and local resources and to talk with local banks about additional short-term loan options.

If my company is behind on rent/utilities, can I use my PPP loan to catch up and stay current, or will the 8-week period following origination be tightly scrutinized when it comes to loan forgiveness?

You are allowed to spend 25% of the loan on rent/utilities, but tread carefully to make sure that number is met. As long as 75% of your loan has been spent on payroll, you should be in the clear for forgiveness.

One last thing: If you are still looking for additional information, the SBA has also created its own FAQ form that has been updated multiple times with new guidance. We strongly encourage businesses to check that out as well and talk over PPP with a trusted financial advisor.

For more resources from the U.S. Chamber of Commerce:

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published March 31, 2020