Contemplating on submitting a PPP loan application? PPP aims to provide a streamlined and low-documentation application process, but there are several items that all applicants must collect before they can submit their applications.
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These include mortgage interest and utility payment proof, property damage costs, supplier cost documentation and worker protection expenditures.
Borrowers must also prove they used at least 60% of the PPP funds for payroll costs during their covered period. This may be verified with receipts, bank statements or amortization tables.
What is PPP?
There is no such thing as a one size fits all PPP. Projects are always specific, even if they are in the same sector, and risks differ in each case. However, best practices lead to standard legal clauses that can be incorporated into contracts.
PPP can provide various benefits for both the government and private partners. It can include ring-fencing the project's cash flows by setting up a special purpose vehicle (SPV) which assumes all rights and obligations associated with the project. It can also include a share of the profits or service charges levied on infrastructure users.
The CARES Act temporarily suspends the requirement that small business owners cannot obtain credit elsewhere. This means those who apply for a PPP loan during the exclusivity period can be granted funding, provided they follow the guidelines set by Congress.
Eligibility for PPP
Remember a few key eligibility requirements before you submit your PPP loan application. Your lender should help you understand the specific needs of your lender's program.
To qualify for the loan forgiveness feature, borrowers must comply with all the rules and documentation requirements. This includes maintaining employee and compensation levels and using at least 60% of the loan proceeds for payroll costs.
For first-draw PPP loans, this requirement applies to the covered period that begins eight weeks (or 24 weeks for some lenders) after the loan disbursement date and ends when the borrower selects a new covered period. During this period, the borrower must demonstrate that:
The business lost at least 25% of gross receipts in 2020 compared to 2019. Additionally, companies must have 500 or fewer employees per location and meet other size standards (details are available on the SBA website).
Additional eligibility criteria include not engaging in illegal activities, being more than 60 days delinquent on child support, farms and ranches, and sex businesses.
Documentation Required for PPP Loan Application
Your lender should be able to help you understand the specific forms you must fill out to apply for PPP loan forgiveness. However, there are a few common elements that all borrowers will need to include in their application:
The first requirement is that the borrower provide documentation of revenue loss. This can be evidence such as correspondence with insurance providers denying a claim or other records of losses.
A second requirement is that the borrower provide documentation of the necessity of their PPP loan request. This can be evidence such as correspondence with a bank indicating that the business is experiencing a liquidity crisis or records of other expenses that show the current economic uncertainty makes the request necessary to support the company's ongoing operations.
Finally, the borrower must provide documentation that the funds are used as specified by the program guidelines. This can include business payments for utilities, rent, and other miscellaneous expenses.
Key Thing to Remember Before Submitting Your PPP Loan Application
There are a few things to keep in mind before preparing your PPP loan application. The first step is to review the guidelines to ensure your business meets them. Then you'll need to decide how much money you want to borrow from the program. Using this PPP loan calculator, you'll need to calculate your average payroll costs. You can only borrow 2.5 times your average monthly payroll cost.
Next, you'll need to submit the required documentation. This includes a government-created application, calculation, and signature form. You'll also need to track how you spent your PPP funds and provide documentation on when you can apply for loan forgiveness.
Other forms you must submit include a copy of your first draw PPP SBA loan number, your business name, address, and phone number, and copies of a government-issued ID for owners with 20% or more of the business's ownership. You'll also need to verify the number of employees and the business's start date.
Taking all these preliminary steps might require extra time in preparation but it will significantly improve your chances of getting your PPP loan application approved, saving you time and money in the end.
