Who Can Get the PPP Loan: Learn if Your Small Business Qualifies
Joseph Camberato
Founder & CEO
Published Jan 25, 2021
7 min read
To apply for the second round of PPP funding, click here. To learn about other flexible business financing options you may qualify for, click here.
As some cities and local economies across the U.S. reopen, but for many small businesses, the fight against the coronavirus is far from over. Even with strategic COVID-19 cash flow management techniques, most small businesses still require aid in the form of government funding.
Business owners will be glad to learn that congress recently approved a $284 billion renewal program for PPP funding. So, who can get a PPP loan?
The Paycheck Protection Program was rolled out by the federal government in early 2020 to help small businesses survive the pandemic with a full staff, preventing job loss and pay cuts. While many have received funding, others are still waiting. And some are looking for additional support.
Whether you’re applying for PPP funding for the first time or you’re looking to lock in a second draw—here’s what you need to know about who can get a PPP loan.
Who Can Get the PPP Loan: Does Your Small Business Qualify?
Congress has approved an additional round of PPP funding and with that comes extended support for small businesses. Businesses that didn’t receive funding from the first round are welcome to apply again.
New companies that never applied in the first place are also encouraged to apply. Businesses that already received PPP funding may qualify for a second draw – albeit under certain conditions.
Restaurants, hotels, and seasonal businesses could be eligible for additional benefits. This time around, they may qualify for a PPP loan up to 3.5 times the amount of one month of 2019 payroll expenses – instead of the standard multiplier of 2.5.
PPP loans are primarily meant for small businesses—not publicly traded companies. To that end, the Small Business Administration (SBA) has limited who can get a PPP loan to companies with 500 or fewer employees—or 300 employees for companies looking to secure a second draw.
There’s a line in the sand on what’s considered a small business for the purposes of the Paycheck Protection Program. The good news is that Congress has expanded the list of who qualifies for PPP funding this time around.
Businesses of all structures can qualify, including:
S-corps
C-corps
LLCs
Private nonprofit businesses
Faith-based organizations
Tribal groups
Veteran groups
501(c)(3) nonprofits
501(c)(6) organizations
Independent contractors
What Your Small Business Needs to Qualify
Beyond the structure of your business, you’ll need to provide a few important details in your application.
Average monthly payroll costs, including proof of payroll (IRS form 941)
Basic information about your business, including the name, address, and tax ID number
Background information about the business owner(s), existing/previous loans, and citizenship status
If you’re planning on applying for a second draw of funds, you’ll need to make sure that you have no more than 300 employees and have used up all your funds from the first round. You’ll also have to show that your business suffered a revenue loss of at least 25% in any quarter in 2020 compared with the same quarter in 2019.
Overall, the PPP loan program is designed for businesses that have suffered economically due to the coronavirus. You’ll have to certify in good faith that the coronavirus has affected your ability to generate revenue and pay employees, and possibly how.
If you meet the criteria and haven’t yet applied for a PPP loan, you should do so immediately. Congress has approved additional funds, and as of this writing, funding is still available.
Will PPP loans run out? As of now, experts are unsure—some have noticed that demand has decreased, while other businesses are still waiting for clarity about forgiveness terms to utilize their funds.
Who Won’t Qualify for the Paycheck Protection Program (PPP)
While the SBA has designed the guidelines to help the majority of small business owners, there are a few restrictions to who can get a PPP loan.
As mentioned above, companies that are publicly traded probably won’t make the cut. That’s because the government is reserving funds for small businesses that need it most.
Private equity firms, hedge funds, and publicly traded companies above a certain threshold generally won’t qualify. To help small businesses that need it most, some larger companies have given back funds.
Needless to say, businesses that operate illegally, or tend to be taboo in the eyes of lenders, may not get a PPP loan. This includes adult- and gambling-related businesses.
Business owners with delinquent child support payments or current bankruptcy proceedings may also encounter difficulties.
Companies looking for a second draw won’t qualify if they have more than 300 employees. They also won’t qualify if they’re unable to show 2020 quarterly losses of at least 25% compared to 2019.
1099 Contractors & Self-Employed Business Owners
1099 independent contractors and 1040 self-employed individuals may be eligible for PPP loans.
The same general guidelines apply to PPP loans given to 1099 independent contractors. The majority of expenses (60%) must be put toward payroll, and up to $100K annually is available. Some of the PPP loan can also be put toward other related expenses, such as business rent, mortgage payments, or other operating expenses. You must have been in business since February 15, 2020.
As an independent 1099 contractor, you’ll have to submit several 1099 forms to provide proof of your income. Self-employed business owners, on the other hand, must submit an IRS Schedule C with a form 1040.
For more information about how who can get a PPP loan and whether or not you qualify, be sure to consult a financial advisor or attorney.
What the PPP Loan Can Be Used For
Unlike most term loans, you can’t put the PPP loan toward any growth or survival-related expenses. The SBA has provided specific guidance about what the PPP loan can be used for.
As the primary purpose of this emergency funding is to help small businesses weather the storm and keep employees on staff, the majority of the loan, or 60% must be put toward payroll.
However, up to 40% of the funding can be put toward other expenses.
Between payroll and operating expenses, business owners can use the PPP loan to cover:
Payroll, which includes salaries, wages, commissions cash tips and any other compensation
Leave expenses for sick & vacation time, parental, family and medical leave
Severance payments for employees let go due to circumstances other than the coronavirus slowdown
Interest on mortgage payments
Business rent and utilities
Group health care benefits, including premiums
Retirement benefits payments
Both state and federal taxes based on compensation
Costs of property damage
Supplier costs
Protection equipment
Certain operational expenses
Before spending your PPP loan, be sure to confirm that you’re following these terms.
Will You Be Eligible for SBA Loan Forgiveness?
Will PPP loans be forgiven?
For businesses that follow the provided terms, the PPP loan is 100% forgivable. In a sense, this means it can be treated as a grant, rather than a loan.
However, PPP loan forgiveness isn’t a given. Small businesses that receive a PPP loan will not only need to follow the guidelines above, but also file a forgiveness application.
Spending more than 25% of the loan to cover expenses that aren’t related to payroll can reduce the forgiven amount.
Get the Funding You Need to Outpace COVID-19
As your small business moves forward, it’s important to make decisions that will help you in the long term.
If you haven’t yet applied for a PPP loan, be sure to do so through an SBA accredited lender. If you have applied, but haven’t yet received funding, inquire about the status of your application.
You can also apply for the PPP loan here.
