In response to the economic uncertainties surrounding the COVID crisis, Congress has acted by passing the CARES Act to help stabilize the economy and preserve the employment of millions of people.  The government has been busy with other measures directed specifically for individuals.  You can learn more about what is available for individuals by downloading this checklist.

Most of the questions that I am getting are related to a specific program included in the CARES Act, the Paycheck Protection Program (PPP).

What follows is not intended to be a comprehensive guide but a resource to answer some of the bigger questions related to the PPP.  Feel free to download our checklist for business owners here.

If you have not yet contacted your bank or SBA lending Institution, do so immediately.  They will be your most valuable partner in navigating the application process.

Frequently Asked Questions

What is the Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) provision of the Coronavirus Aid, Relief and Economic Security (CARES) Act, is designed to help small businesses facing economic uncertainty in light of the COVID-19 crisis to retain employees and pay for short-term expenses.

When can I apply?

Small businesses and sole proprietorships were able to start applying on April 3, 2020.  Starting April 10, 2020, independent contractors and self-employed individuals can start applying.

Where do I apply?

You can apply through any existing SBA lender or through any federally insured depository institution or federally insured credit union.  I highly recommend you contact the bank that you have an existing relationship with first.

Who can apply?

Any small business with 500 or fewer employees, experiencing or expected to experience economic uncertainty as a result of the COVID-19 crisis may be eligible.  This includes small businesses, sole proprietors, S corporations, C corporations, LLCs, independent contractors, self-employed people and non-profits.  In addition tribal groups and veteran groups are eligible as well.

How much can I qualify for?

You can qualify for up to 2.5 times your average monthly payroll.

How do I calculate my average monthly payroll?

This is directly from the SBA’s Interim final rule.  You may want to consider contacting your accountant to calculate your amount:

  1. Step 1: Aggregate payroll costs from the last twelve months for employees whose principal place of residence is the United States.
  2. Step 2: Subtract any compensation paid to an employee in excess of an annual salary of $100,000 and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000 per year.
  3. Step 3: Calculate average monthly payroll costs (divide the amount from Step 2 by 12).
  4. Step 4: Multiply the average monthly payroll costs from Step 3 by 2.5.
  5. Step 5: Add the outstanding amount of an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less the amount of any “advance” under an EIDL COVID-19 loan (because it does not have to be repaid).

Can You Provide Examples of how to calculate the amount?

Here are some examples provided by the SBA:

  • Example 1 – No employees make more than $100,000 Annual payroll: $120,000 Average monthly payroll: $10,000 Multiply by 2.5 = $25,000 Maximum loan amount is $25,000
  • Example 2 – Some employees make more than $100,000 Annual payroll: $1,500,000 Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000 Average monthly qualifying payroll: $100,000 Multiply by 2.5 = $250,000 Maximum loan amount is $250,000
  • Example 3 – No employees make more than $100,000, outstanding EIDL loan of $10,000. Annual payroll: $120,000 Average monthly payroll: $10,000 Multiply by 2.5 = $25,000 Add EIDL loan of $10,000 = $35,000 Maximum loan amount is $35,000
  • Example 4 – Some employees make more than $100,000, outstanding EIDL loan of $10,000 Annual payroll: $1,500,000 Subtract compensation amounts in excess of an annual salary of $100,000: $1,200,000 Average monthly qualifying payroll: $100,000 Multiply by 2.5 = $250,000 Add EIDL loan of $10,000 = $260,000 Maximum loan amount is $260,000

What documents and/or information will I need to apply?

Different banks may require different documentation, so it will be best to contact your bank or lender, but the following documents and information seems to be standard:

  • PPP Borrower Application Form 2483 
  • Articles, EIN #, and Operating Agreement(s) for the business making application
    • If you are a non-profit your Non Profit Designation from the IRS
  • Date that the business was formed.
  • Current Driver’s Licenses for all owners of the business (probably only those with 20% or more ownership).
  • Email Address and contact information for all owners of the businesses (again probably only those with 20% or more ownership).
  • Detailed information (spreadsheet or whatever you used) explaining and supporting how you calculated your average monthly payroll costs per the guidelines  You may need the assistance of your CPA or accountant.
  • Supporting Documentation of the above which may include
    • Payroll records if processed through a 3rd party vendor
    • Payroll Tax Filings (Form 941 and Form 940)
    • Form 1099-MISC
    •  Other misc. documentation supporting your figures (your accountant and/or payroll provider would be good people to advise you)
  •  Company NAICS Code which usually can be found on your company tax return or you can search here.
  • Some Banks my require previous years tax returns

What portion of the loan might ultimately be forgiven?

If you’re able to keep employees on payroll or continue to pay the company bills, the amount of the loan forgiveness may include payroll costs (capped at $100,000 annually per person), interest on mortgage payments, rent obligations and utility payments. The total amount forgiven will be reduced if you reduce wages or if your workforce decreases.

When would your loan payment be due?

While repayment dates will be determined on a loan-by-loan basis, typically each loan will have an automatic deferment, of both principal and interest, of at least six months, with the full loan due after two years. The interest rates on loans start as low as 0.5%, and cannot exceed 4%.

What is something else I should consider?

The next phase of this process will be to apply for forgiveness for all or a portion of the loan as outlined in the Interim Final Ruling.  We HIGHLY recommend that if you receive a PPP loan, open a new checking account so that the loan proceeds can be deposited in one place and all proceeds disbursed from the same.  This will make tracking much easier.  If you deposit the proceeds in your general operating account it could be quite a task sorting through 8 weeks of records, after the fact.

What should I do first?

PPP money will be loaned out on first come first served basis.  Get in touch with your lending institution ASAP.  Due to the shear number of businesses applying, you may not be able to get a personal response.  Most banks are setting up online portals to facilitate the application process and mange the volume of applications, so be sure to check your banks website for direction.  Not all banks are set up as of this post so bring a lot of patience and persistence to the application process.

Also, contact your accountant or CPA to help with calculating your loan amount.

Keep in mind the unprecedented nature of the PPP.  Banks are getting a lot of questions and many people are applying ALL at once so be Patient.  But also be persistent.  


For more information on the Paycheck Protection Act Program, the Treasury Department has released its own summary on its CARES Act resource page, and the U.S. Chamber of Commerce has a guide and checklist available as well.  PLEASE NOTE: The information being provided is strictly as a courtesy. When you link to any of the websites provided here, you are leaving this email. We make no representation as to the completeness or accuracy of information provided at these websites.



About Erik Garcia

Hi there, I'm Erik. How you manage your money and other resources impacts practically every aspect of your life. I help individuals and families invest plan for a more secure and predictable financial future. Thanks for taking time on my site!

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