Skip to main content
What is the SBA Paycheck Protection Program?
Business Capital

What is the SBA Paycheck Protection Program?

17 min read


The deadline for PPP application submissions has been extended to May 31, 2021. We encourage all those interested in receiving PPP funding to apply as funds are still available for distribution.

Apply for your PPP loan now.

In response to the economic crisis created by COVID-19, the US Government passed a stimulus bill—known as the CARES Act—to provide much needed assistance for citizens and businesses across the country. The stimulus package delivered over $2 trillion to the U.S. economy, in the form of checks to individual citizens, increased funding for medical and welfare organizations, and loans for small businesses

Small businesses—especially those in entertainment, restaurants, and retail—have been particularly hard hit by quarantine and shelter-in-place orders. The CARES act set aside nearly $350 billion for the Small Business Administration to fund a new program—Paycheck Protection Loans. 

Unfortunately, the funds allotted to the PPP were exhausted in less than two weeks. On April 24, 2020, the Federal government passed an additional relief package providing $310 billion to replenish depleted PPP funds (another $60 billion would go to SBA Emergency loans).The Coronavirus Relief Bill was signed December 27th, 2020 and provides another round of funding, including $284 designated for the Paycheck Protection Program. 

We’re sharing all the details that you need to know about this program for your small business, and how you can submit your application through Divvy.

The CARES Act and Coronavirus Relief Bill

This isn’t even a stimulus package. It is emergency relief.” – Senate Majority Leader Mitch McConnell

The CARES Act is expansive, providing over $377 billion in relief specific to small businesses. Some of the loan program funds are prescribed for specific government programs and uses, such as funding for hospitals or the Paycheck Protection Program. Other funds usage will be more flexible and dynamic as the crisis continues, like the expansion of unemployment as layoffs create need.

The relief package signed into effect on April 24, 2020, allocated $310 billion to the PPP on top of CARES Act funding.

The Coronavirus Relief Bill signed by President Trump on December 27th, 2020 provides an additional $284 billion for a second round of PPP funding.

The Biden administration further updated PPP loans in February-March 2021 to better help small businesses access funds. From February 24-March 9 the SBA will be dedicated solely to small businesses to ensure access to PPP funding. Additionally, businesses and sole proprietorships with fewer than 20 employees can begin in late March to calculate funding eligibility using gross income rather than net profits, which increases the amount of money and loan forgiveness significantly. The Targeted EIDL program provides grants directly to businesses in need who were unable to access these advances last time.

What is the SBA Paycheck Protection Program?

Requirements and eligibility have changed for the December 2020 PPP funds, including the size of your business (300 or fewer) and the amount you can borrow ($2 million for previous applicants).

The Small Business Administration created the Paycheck Protection Program to help small businesses and sole proprietorships continue to cover their payroll despite global economic decline. The SBA Paycheck Protection Program is a temporary solution to get small businesses employers and employees through the COVID-19 disaster, minimizing layoffs and encouraging normal business operations. 

The SBA Paycheck Protection Loans are brand new and unique to this economic crisis, and can be eligible for 100% forgiveness if qualifications for usage and employment numbers are met. Current details about the Paycheck Protection Program and disaster loans are listed for quick reference in this table, with expanded information following.

Round two of the Paycheck Protection Program
Eligible businesses
  • Small businesses, tribal businesses, veterans organizations, and nonprofits with fewer than 300 employees
  • Sole proprietors
  • Independent contractors
  • Self-employed individuals
Max borrowing amount

First time applicants may borrow the lesser of:

  • $10 million OR
  • 2.5x average monthly payroll costs

Second time applicants may borrow the lesser of:

  • $2 million OR
  • 2.5x average monthly payroll costs
Term lengths 2 years
Interest rates 1%
Forgiveness Up to 100%*
Deferred payments 6 months (though interest still accrues)
Availability Likely opening early-mid January 2021
  • Payroll and compensation
  • Insurance premiums and healthcare benefits
  • Mortgage interest costs
  • Rent and utilities
  • Interest on other debt obligations

*Forgiveness may be reduced dependent on reduction of number of employees or reduction in salaries.

Who is eligible?

The Paycheck Protection Program is executed by the Small Business Administration, and therefore targets small businesses, organizations, sole proprietorships, and nonprofits. The main eligibility requirement is that the business or organization has fewer than 300 employees. Sole proprietors, freelancers, veterans organizations, and self-employed individuals can also qualify for the Paycheck Protection Program. 

In order to apply, businesses or individuals must demonstrate a 25% reduction due to COVID-19 compared to 2019. The business must have been in existence before February 15, 2020, There are no requirements specifying credit scores or collateral for the loans.

Can I apply for second-draw PPP loans if I’ve applied for loan forgiveness for my first PPP loan?
Yes. As long as you used your first PPP loan as outlined you can apply for second-draw PPP loans, so long as you meet all other eligibility requirements (<300 employees, 25% reduction in revenue, etc.).

Loan borrowing amounts and terms

Small businesses hurting from the coronavirus impacts can apply to receive up to 2.5x their average monthly payroll costs—essentially guaranteeing over two months of payroll to maintain employment. The loans top out at $10 million for first time applicants and $2 million for repeat applicants. 

For most businesses, the calculation will be straightforward, but the Small Business Administration will help seasonal and brand new businesses determine their accurate estimates.

What counts as payroll?  Salaries, health care benefits, bonuses, retirement, and other benefits provided to employees. Under the Paycheck Protection Program salaries are only covered up to $100k.

Paycheck Protection Loans are for two years and include 1% fixed interest rate. Payments will be deferred for six months following the initiation of the loan. 

Paycheck Protection Loan forgiveness

The most significant draw for the Paycheck Protection Program is the opportunity for 100% loan forgiveness. PPP loan forgiveness is contingent upon the use of funds, number of employees, and employee salaries over the life of the loan. Meeting these directions can qualify borrowers for 100% loan forgiveness, meaning you would not have to pay back the principal of the loan. 

  • Use of funds: funds must be used for payroll, mortgage interest, rent, utilities, payroll tax, or employee benefits
  • Employment numbers: any reduction in employees will need to be reversed by July 1st,, 20 in order to qualify for 100% loan forgiveness
  • Employee salaries: Decreasing any below-$100k salaries by 25% or more will disqualify your business for 100% loan forgiveness, unless replaced by July 1st, 2021

Forgiveness will be determined on a case-by-case basis after completing and submitting a loan forgiveness application, which will include a detailed documentation of the use of Paycheck Protection Loan funds.

Divvy makes it easy to track each and every transaction, syncing seamlessly with your accounting software and locking budgets to help you navigate the COVID-19 crisis and use your Paycheck Protection Loan wisely.


The first round of applications for the Paycheck Protection Program opened on Monday, April 6th. However, the applications closed less than two weeks after this date, when on April 16th, the SBA announced a “lapse in appropriations.”

The announcement of additional funding marks a second round of PPP applications, beginning on April 27th. These loans were made available until Tuesday, June 30th—though the funds were exhausted quickly, as over 1.6 million small businesses applied. 

The Coronavirus Relief Bill launched another round of funding which will likely become available in early-to-mid January 2021. 

PPP loans are awarded on a first-come, first-served basis. In order to expedite these funds, the Small Business Administration does not require official SBA approval of each and every loan, so funds can be made available within days of a completed application. 

SBA Paycheck Protection Loans are available through any approved SBA 7(a) lender (many banks and credit unions qualify). Find an SBA office in your state to check for approved lenders.

How can businesses use Paycheck Protection Loans?

Unlike regular loans which are used at your discretion, Paycheck Protection Loans need to be carefully used and documented to qualify for 100% loan forgiveness–the goal of many businesses during this chaotic time. So how exactly can a Paycheck Protection Loan be used? 

  • Payroll costs
    • Salaries, commission, wages, tips (up to $100,000/year)
    • Employee benefits: vacation, family/medical/parental/sick leave, insurance premiums, retirement
    • State & local compensation taxes (payroll tax)
    • Sole Proprietors & Independent contractors: income and net earnings (also capped at $100,000/year)
  • Interest on mortgage
  • Rent for leases
  • Utility services

The Paycheck Protection Loans are designed to keep businesses running and allow employees to keep their jobs during the short-term economic crisis. Paycheck Protection Loans cannot be used for purchasing new property or equipment, inventory, repairs, paying off other loans or financial obligations, or any other expenditures not directly related to payroll and day-to-day operations of your business.

How to apply

Payment Protection Loans can be applied for through any SBA-approved institution. Currently there are over 1,800 such institutions, but as the SBA has relaxed requirements to encourage more institutions to participate the number will grow and access to the loans will increase.

Get started on your SBA PPP loan application.

To submit an application for a Payment Protection Loan, contact any SBA 7(a) lender to begin the application process. You can prepare for faster application by assembling the following materials and documentation. 

  • Payroll: Tax Forms 940 and/or 941 from January 1, 2019 to the most current filing. *Note that a bank statement will not suffice for proof of payroll & operations
  • Articles of organization and W9: Include these documents for the business entity that will be borrowing or that has paid payroll.
  • Existing lender waiver: A waiver or email from your existing lender(s) confirming that you can take on additional, unsecured financing.

Frequently Asked Questions

Can I get a PPP loan if I have bad credit?

Yes. Unlike other SBA loans, the Paycheck Protection Program does not require a credit check in order to qualify for the loan. 

Can I apply for a PPP loan if I am my only employee?

Yes — the Paycheck Protection Program is designed to include sole proprietors and independent contractors who are their only employee. 

What would disqualify me from a PPP loan?

The following conditions will disqualify an individual or small business from a PPP loan:

  • More than 300 employees
  • Inability to prove a 25% reduction in revenue for one specified quarter of 2020
  • Illegal activity
  • Household employer, i.e. your employees are housekeepers, nannies, etc. 
  • An owner with 20% or more equity in the company is facing criminal charges, or is incarcerated or on probation. 
  • An owner with 20% or more equity in the company has committed a felony within the last 5 years
  • You are delinquent or have defaulted on a federal loan, including an SBA loan
  • You are a publicly traded company
  • Your company has 20% Chinese ownership

Can I apply for a PPP loan if I have a felony?

You can apply for a PPP loan only if your felony charge is not within the last 5 years.

What’s the difference between an SBA Disaster Loan and a PPP Loan?

Another SBA lifeline for small businesses during the COVID-19 disaster is an Economic Injury Disaster Loan. While similar to Paycheck Protection Loans, Economic Injury Disaster Loans (EIDL) are different in terms of size, scope, and who can qualify.

What is an SBA Disaster Loan? Download our SBA Disaster Loan Guide.

As described above, the Paycheck Protection Program is designed for short-term relief to allow businesses to keep their employees on the payroll during the peak of the COVID-19 crisis. In contrast, an Economic Injury Disaster Loan provides for more long-term support and can be used with wider discretion. For example, you could apply for an EIDL to adapt your business with new equipment or resources to survive the coronavirus slowdown, such as a drive-through, online access, or delivery service.

Economic Injury Disaster loans Paycheck Protection Program loans
Administered by SBA approved lenders
Eligible businesses Small businesses with 500 or fewer employees, nonprofits, sole proprietors, and independent contractors Small businesses with 300 or fewer employees, nonprofits, sole proprietors, and independent contractors
Max borrowing amount $2 million

First time applicants may borrow the lesser of:

  • $10 million OR
  • 2.5x average monthly payroll costs

Second time applicants may borrow the lesser of:

  • $2 million OR
  • 2.5x average monthly payroll costs
Term lengths Up to 30 years 2 years
Interest rates 3.75% (2.75% for nonprofits) 0.5%
Deferred payments 6 months (under current SBA debt relief plan) 6 months (though interest still accrues)
Forgiveness N/A Up to 100%
  • Fixed debts
  • Payroll
  • Utilities and other bills
  • Business adaptations and obligations
  • Payroll and compensation
  • Insurance premiums and healthcare benefits
  • Mortgage interest costs
  • Rent and utilities
  • Interest on other debt obligations

Since disaster loans and PPP loans are different, small businesses can actually apply for both as long as they are used for different purposes—PPP for payroll and EIDL for debts, as an example. It’s worth your time to apply for both. 

In addition, when you apply for an EIDL loan, you can request a $10,000 emergency cash grant (also funded through the CARES Act). Small businesses can qualify for these grants even if they do not qualify for EIDL or PPP loans—plus, the funds do not need to be repaid.

Learn more about applying for an SBA Disaster Loan here.

Alternative lending sources

Economic Injury Disaster Loans require you to exhaust all other options before qualifying, and the Paycheck Protection Loans is in high demand among American small businesses. It is in your businesses best interest to research alternative lending sources in this time of economic emergency. 

Start with your bank to assess small business loans they offer. Often banks and private lenders such as Lendio or Fundera will provide an emergency loan for your small business with a rapid online application and immediate disbursement, though the disadvantage may be found in the terms and interest rates being less favorable.

Divvy is sympathetic to the needs of our customers and all small businesses. We are ready and waiting to answer your questions and provide free information and resources for surviving COVID-19, no matter how it is affecting your business.

Leave a Reply

Close Menu