Paycheck Protection Program COVID-19

What is the Paycheck Protection Program and how do you apply?

7 min read
Derek Miller

This quick-start guide to the new Paycheck Protection Program (PPP) will give you answers to some of the questions you might have about this new federal small business loan program for businesses impacted by COVID-19.

This program is offered by the U.S. government, not GoDaddy. Please see the linked pages for applicable terms, restrictions and instructions governing the program.

Disclaimer: This content should not be construed as legal advice. Always consult an attorney regarding your specific legal situation.

Quick-start guide to the Paycheck Protection Program

Related: COVID-19 goodwill offers and resources for small businesses

Editor's note: For answers to more commonly asked questions about the PPP, please check out the Next Street and GoDaddy webinar + recap: Applying for PPP and other COVID-19 relief funding

What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a new, forgivable small business loan worth up to $10 million for eligible businesses to cover payroll expenses during the coronavirus pandemic.

Paycheck Protection Program loans were created by the $2.2 trillion government relief package — the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act allocated $349 billion for the Paycheck Protection program to aid U.S. small businesses that are struggling because of lost revenue from COVID-19. That funding ran out on April 16.

The “Paycheck Protection Program and Health Care Enhancement Act” — which the U.S. House passed on April 23 and the President signed into law on April 24 — includes $310 billion to replenish the PPP.

The U.S. Small Business Administration (SBA) administers the PPP.

The program is designed to help small businesses during the coronavirus crisis, with less red tape and fewer guardrails than the SBA’s existing loan programs.

It is designed to incentivize business owners to keep employees on payroll by offering them loan forgiveness.

These loans will give small businesses enough capital to cover an estimated eight weeks of payroll, utilities, rent and other expenses.

If a small business is approved for a Paycheck Protection Program loan and uses it to cover the approved expenses — including payroll costs, interest on mortgages, rent and utilities over the 8 week period after the loan is made — then the loan converts into a grant. Employee and compensation levels must also be maintained.

If you fail to use the entire funds within eight weeks or use it incorrectly (e.g. you decrease number of staff and level of payroll during this period), you may need to repay part or all the loan back over two years with a 1% fixed interest rate.

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What’s the goal of the PPP?

The Paycheck Protection Program was a response from the government to help mitigate the economic effect of the coronavirus on small businesses throughout the country.

The goal of the Paycheck Protection Program is to keep businesses alive and help to curb rising unemployment levels.

Businesses that take advantage of PPP loans and use them correctly are rewarded by having the loan fully forgiven. This incentivizes small businesses to keep their doors open and employees on the payroll through the toughest stretch of the pandemic.

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Who is eligible for a PPP Loan?

Unlike other SBA loans that have strict qualifications, PPP loans are much more lenient and were designed to cover as many small businesses as possible.

Businesses with 500 or fewer employees (see details below) can apply, including:

  • Small businesses
  • Sole proprietorships
  • Independent contractors
  • Self-employed professionals
  • Nonprofits
  • Tribal businesses
  • Veterans organizations

These loans do not require a personal guarantee or collateral.

To qualify for a PPP loan, you need to have 500 or fewer employees (certain industries may qualify with more than 500 if they meet SBA’s size standards).

You will also need to show that the coronavirus has caused financial distress in your business and that the funds are necessary for you to continue operations.

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How much can you receive with a PPP loan?

The maximum amount that you can receive from the Paycheck Protection Program is $10 million.

  • Payroll costs are capped at $100,000 on an annual basis per employee.
  • Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.

Your specific loan amount is based on 2.5 times your average monthly payroll costs based on 2019 data.

If you’re a new or seasonal business, you will need to use a different time period as outlined within the application.

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How can you spend your PPP loan?

Paycheck Protection Program loans are meant to be used for payroll costs over an eight-week period. The proceeds from PPP loans can be used for:

  • Payroll costs and employee benefits
  • Rent and interest on mortgage (contracts established before Feb. 15, 2020)
  • Utilities (contracts established before Feb. 15, 2020)

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How much of the PPP loan might be forgiven?

Businesses can have their Paycheck Protection Program loan completely forgiven if they use the funds correctly over the eight weeks. To be forgiven, businesses must use at least 75% of the loan towards payroll costs.

Payroll costs outlined within the PPP include:

  • Employee salary, wages, tips and commissions (capped at $100,000 annual salary)
  • Employee benefits (PTO, family leave, sick leave, etc.) and insurance premiums
  • State and local payroll taxes

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How many loans can you apply for under this program?

You can only apply for one PPP loan.

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When should you apply for a PPP loan?

Paycheck Protection Program loan applications started on April 3 for small businesses and sole proprietorships and on April 10 for independent contractors and self-employed. Lenders resumed accepting PPP applications on April 27.

If you haven't already done so, consider applying as soon as possible. The PPP will remain open until June 30, 2020.

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How do you file a PPP loan application?

You can access the Paycheck Protection Program loan application online and complete it at your own leisure, but you will need to submit it through an existing U.S. Small Business Administration (SBA) lender or any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.

The SBA is working hard to expand its approved lenders, so contact yours and see if they are currently or have plans on participating. 

Other lenders will be available to make these loans once they are approved and enrolled in the program.

You will need to complete the Paycheck Protection Program loan application and submit it with the required documentation to an approved lender.

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If your small business is struggling as a result of the coronavirus pandemic, the government has financing options that may help. Thanks to the CARES Act and Paycheck Protection Program and Health Care Enhancement Act, you may be eligible for a fully forgiven loan up to $10 million through the Paycheck Protection Program.

If you still have questions about the PPP that were not addressed above, you may find the answer on SBA’s website or this FAQ from the U.S. Treasury.

You can do this!

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Above all, have faith in yourself. We have faith in you.