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NGExpert financial copywriter
During the COVID-19 pandemic in 2020, the U.S. Small Business Administration (SBA) started the Paycheck Protection Program (PPP) to help small businesses keep their employees on payroll during the crisis.
The PPP was established by Congress via the Coronaivirs Aid, Relief, and Economic Security (CARES) Act of 2020 as a federal program to provide economic assistance to Americans during the crisis. Small businesses that took out PPP loans were eligible for loan forgiveness if they followed certain rules in how they used their loan funds.
Find out more about PPP, including when it expired and alternative funding options.
Page written by Kat Cox. Last reviewed on February 10, 2024. Next review due October 1, 2025.
The SBA Paycheck Protection Program (PPP) was a federal loan program put in place to provide relief to U.S. small businesses that suffered losses due to the shutdowns during the COVID-19 pandemic. The program was intended to help small businesses continue to pay their employees and keep employees on payroll during the pandemic.
The PPP was administered by the U.S. SBA and the Department of the Treasury and was set up through an act of the U.S. Congress.
Entities in the U.S. that were eligible for PPP loans included:
Applicants had to meet certain size standards and other requirements in order to get PPP loan funds as well.
Loans in the PPP had low interest rates, but businesses that used the loans to pay for employee payroll and other approved costs could apply for forgiveness and not have to pay them back. This included using the funds to pay for:
The initial round of PPP loans was called First Draw PPP loans. Businesses and other entities who had not previously applied for a PPP loan were eligible to apply for First Draw PPP loans until the program expired.
Borrowers who received loans before June 5, 2020 were eligible for repayment terms of two years, while those who got loans after that date had repayment terms of five years. All First Draw PPP loans had an interest rate of one percent, but could be forgiven if the entity used the funds in designated ways.
As with all SBA loans, First Draw PPP loans were administered by the SBA but managed and funded by approved lending partners. Borrowers were required to meet the SBA’s definition of a small business and operate approved industries within the U.S. and its territories in order to qualify.
Certain businesses that received First Draw PPP loans were also eligible to apply for a second round of funding, called Second Draw PPP loans. Second Draw PPP loans were offered with the same general loan terms as the business’s First Draw PPP loan.
As with the First Draw PPP loans, Second Draw PPP loan funds could be used to pay for employee payroll costs, including taxes and benefits. Borrowers could get 2.5x their average monthly payroll costs from 2019 or 2020 up to $2 million.
Other eligibility requirements for Second Draw PPP loans included:
Because PPP loans were meant to help businesses keep their employees on payroll during the economic crisis caused by COVID-19 lockdowns, the loans were meant to be forgiven if borrowers used the funding for that purpose. In order to have their PPP loans forgiven, borrowers had to follow certain guidelines on how they were allowed to spend their loan funds.
For First Draw PPP loans, the eligible borrowers could qualify for full loan forgiveness if they did the following during the eight to 24-week covered period after funding:
For Second Draw PPP loans, borrowers could get forgiveness if they did the following during the eight to 24-week covered period following loan funding:
Borrowers are able to apply for loan forgiveness as soon as they spend all of the funding from their loan up to the maturity date of the loan. Because the maturity dates vary from two years to five years, many PPP recipients are applying for forgiveness several years after the PPP loan program has ended.
If applying for loan forgiveness, you should prepare documentation, including proof of payroll costs and expenses. Some documentation may include:
If the borrower spent their money on qualifying non-payroll expenses, they can also submit documentation as proof for loan forgiveness. This includes:
In order to apply, the borrower can use the SBA’s loan forgiveness portal if their lender is participating in direct forgiveness. If not, they must apply through their lender, who will provide them with the appropriate form (SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S or lender equivalent) and guidance on how to apply.
PPP ended May 31, 2021. At that point, the SBA quit providing new loans to businesses through the program. However, business owners who received funding through the First and Second Draw PPP loans are still eligible to seek forgiveness for their loans once they’ve spent all the funding and up to the loan’s maturity date.
The PPP offered exceptionally good loan terms and forgiveness in order to combat the economic effects of the COVID-19 pandemic. While the program is no longer lending money to small businesses, there are other alternatives for small businesses that need funds.
SBA loans offer extremely attractive repayment terms and interest rates. The two most popular programs, the 7(a) and 504/CDC loan programs, also offer loan amounts up to $5 million and $5.5 million, respectively. Other loan programs like the SBA microloan program allow borrowers to get smaller amounts of money as well. Borrowers need to be eligible to receive SBA loans, meaning they have to operate a legal business in the U.S. or its territories and meet the definition of a small business set by the SBA. Also, there are some stipulations on what the loans can be used for. But these loans are specifically designed to help U.S. small businesses to grow.
Because SBA loans are so attractive, they’re also extremely competitive, so some businesses may find it difficult to qualify for them. There are many other business loans available, especially from traditional banks or credit unions. If you have a bank you already do business with, it’s a good idea to ask them about their available loan programs to see if you qualify. Many online lenders may have business loans available, as well; while they may be easier to qualify for, they generally come with higher interest rates and shorter repayment terms.
If you can’t qualify for a business loan, whether because you have poor credit, you haven’t been in business long enough or any other reason, you may still be able to qualify for a business credit card. These cards can help you pay for everyday expenses like office supplies, equipment or gas, which can help you open up cash flow to afford other expenses. Some cards may even offer points or rebates to help you save even more money. However, credit cards can come with high interest rates, so it’s important to make sure you can make monthly minimum payments and pay off the entire balance before it adds up too quickly.
If your small business does a lot of business in credit cards, a merchant cash advance (MCA) may be one way to get a quick injection of funds. With an MCA, your business receives a lump sum of cash which it repays to a financing company through credit card sales going forward. The financing company can also charge fees and determines how often they’ll receive repayment, often at the end of every business day. Because they tend to have high factor rates (which are used instead of interest) and fees, MCAs are not always the best option, although they can help businesses that do a high volume of sales through credit cards.
Another way to generate a lump sum of cash for your business quickly is to use invoice factoring. In this scenario, your business basically sells your outstanding, unpaid invoices to a third party for a sum, usually 80-90 percent of what the invoices are worth. That company then takes over collecting on those invoices from your customers, usually giving them longer payment terms. It’s a good way to open up cash flow for your business, especially if you have long repayment terms for customers, but factoring companies can charge high fees.
Many small businesses and startups turn to crowdfunding to help them launch a new product or service. Crowdfunding can take many forms, including asking friends and family to chip in or asking other investors through services like Kickstarter. In crowdfunding scenarios, you may sell some of your business equity to investors or you may give funders access to your product or service. Unlike with business loans, you don’t have to pay back money from crowdfunding, although you may have to provide a product or service to your funders.
There are several ways to find funding for your business outside of PPP loans.
Swoop uses your business information to match you with loans and other sources of funding that meet your business needs and that we think you’re most likely to qualify for. You can use Swoop to cut down the time you take searching for funding and to compare loans and other programs by their rates and terms.
If you have an account at a bank or credit union, you can talk to a representative there to see what kinds of programs you may qualify for. Depending on the size of the bank and how long you’ve been a customer, they should be able to look at your finances and the reason you need funds and help you find a solution.
The SBA offers more information on their loan programs, including lenders with whom you can apply. You can find out if you qualify for any of their loan programs, including SBA 7(a) loans, 504/CDC loans and microloans.
Download Swoop to start seeing your funding options today. Simply answer a few questions about your business and what you need funding for and we’ll start matching you with your best options. Get started today.
Written by
As a B2B finance content specialist, Kat Cox's goal is to distill complicated financial issues into useful information for small business owners, to save them time they could be using to build their companies. Her work has been featured in Forbes and on financial health platform Nav.com. When she's not writing blogs, web copy, or fiction, Kat can be found walking her dog or singing karaoke in Austin, Texas.
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