If you run a small business, then you know the past 12 months have been incredibly challenging. You have probably wondered if the pandemic is ever going to end, as it has had a massive impact on your business. Supply chains are having difficulty keeping up with the man. Changing restrictions in various jurisdictions have made navigating this process difficult. Because of an erratic cash flow, a lot of businesses have been forced to lay off employees. Fortunately, this may not be something you have to do. If your small business has been struggling during the pandemic, then you may want to apply for something called a Paycheck Protection Program (PPP) loan. What is this loan, and how do you qualify for it?
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What Is the PPP Loan?
This is a loan that has been specifically designed to provide small businesses with several months of funds. Depending on what type of loan you apply for, when you apply for it, and when it is approved, you may be able to use this loan to get you through several months of expenses.
Even though this is technically called a loan, you will not necessarily have to pay it back. The idea is that you are supposed to use this loan to cover the salaries of the employees you have on your payroll. That way, even if there is not enough money coming in, you can use this loan to cover the overhead expenses of your business, including your employees. As long as you do not lay off any of your employees during the time period of your loan, you should not have to pay it back. At the same time, you also need to track if your employees leave for other reasons, as you do not want to be penalized for it.
Even if you do have to repay your loan, a few terms you need to keep in mind include:
- These loans typically have an interest rate of only one percent
- You have 5 years to pay back this loan
- It is possible for you to apply for a loan that will cover expenses for 6 months
- You do not have to start paying back the loan until the loan disbursement period ends
- There are no fees associated with this loan
- You do not have to put up any collateral
For all these reasons, a loan through this program is much better than a loan from a traditional bank.
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How Can a PPP Loan Be Used?
In order to qualify for loan forgiveness under the start down, you have to know exactly how you can use this loan. The vast majority of this money (60 percent) has to be used on payroll and employee benefit expenses. If you do not meet the criteria, you will be forced to pay back the loan. Therefore, you should document exactly how you are using your loan money. That way, you can support your application for loan forgiveness.
Then, what can the remaining 40 percent be spent on? There are several examples, including:
- You can use this to pay your rent, lease, or mortgage payments
- You can use this money to cover your utility expenses
- You can use this money on operational expenses including software and accounting
- If you have property damage that is not covered by insurance, you can use the loan to cover these expenses
- You can also use this money to pay for the cost of goods sold
Again, document these expenses closely, so you do not have to pay back your loan.
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How Do You Qualify for One?
Clearly, there are a lot of benefits that come with this loan. How do you qualify for one? A few criteria you have to meet include:
- Your business has to have been open before February 15th, 2020
- You must have fewer than 500 employees on your payroll
- If you have multiple locations open, no single location can have more than 500 employees
- Your business is still open and operational
Clearly, the pandemic has been going on for a long time. Therefore, a single loan may not be enough for you to cover all of your overhead expenses. If you need to qualify for a second loan, there are additional criteria you need to meet. These include:
- All of your money from the first loan has to be used up
- You must be able to prove that your gross revenue has been reduced by more than 25 percent
- You must employ no more than 300 employees
- If you have multiple locations, no single location can have more than 300 employees
If you are looking for a way to keep the doors of your business open during the pandemic, a PPP loan could be for you.