The Small Business Administration (SBA) has launched the Paycheck Protection Program – part of the $349 billion COVID-19 economic stimulus package – to provide up to 100% forgivable loans to eligible businesses so they can keep workers on the payroll.

Here’s helpful information for small businesses on the Paycheck Protection Program.

1. What are the terms of the loan?

The loan terms are the same for all borrowers. The loan matures at two years, but initial payments are deferred for six months (interest continues to accrue during deferment). Businesses can choose to pay ahead of time. The interest rate is set at 1%.  No collateral or fees are required.

2. How can I get the loan forgiven?

Loans are 100% forgivable if the funds are used to pay for payroll costs and interest on mortgages, rent and utilities (at least 75% of the forgiven amount must have been used for payroll). Eligible payroll costs include:

  • Salary, wages, commissions or tips of up to $100,000 annualized for each employee (including sole proprietors or independent contractors).
  • Benefits including vacation, parental, family, medical or sick leave, payments for group health care benefits and retirement benefits.
  • State and local taxes imposed on compensation.

Funds not used for forgivable expenses must be paid back according to the aforementioned loan terms. To claim forgiveness, you need to submit documentation to the lender proving appropriate use of funds; the lender then makes a decision on your forgiveness request within 60 days. Forgiveness is based on the employer maintaining or rehiring employees and maintaining salary levels.

Forgiveness is reduced if employees, salaries or wages are reduced.

3. How much can I borrow?

Businesses can borrow up to two months of payroll costs from last year, plus an additional 25%, up to a limit of $10 million. Payroll costs are limited to $100,000 annualized per employee.

4. Who is eligible for the loan?

Businesses and organizations including nonprofits, veteran organizations, sole proprietorships, self-employed individuals and independent contractors with fewer than 500 employees are eligible to apply. Businesses in specific industries may have more than 500 employees if they meet certain standards.

5. How do I apply?

Small businesses and sole proprietorships eligible to apply and receive loans can already start the application process. Independent contractors and self-employed individuals can start applying on April 10.

You can apply with any existing SBA 7(a) lender or any federally-insured depository institution, federally-insured credit union or Farm Credit System institution that is participating. Check with your local and national lenders to find out what institutions are participating in the program.  To see what information you need to provide, download the Payment Protection Program Borrower Application Form.

Due to a surge in applications, the SBA system used to process applications crashed Monday (it has since been restored). Lenders also might be slow to process applications due to high demand. Keep in mind that you may need to be patient and willing to work through the process.