Your Business Credit

Making the most of the PPP extension

Congress has allowed more time for small businesses to apply for Paycheck Protection Program funds. Here’s what you should know


Congress just extended the Paycheck Protection Program’s application period to Aug. 8. If you haven’t taken advantage of it already, here’s what you need to know about the program, and how you should prepare to apply.

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If you’ve been in a cash flow crunch as the country reopens for business, it may be time to take a fresh look at the Paycheck Protection Program (PPP) if you did not apply for a loan under the program earlier.

Congress just extended the PPP application period to Aug. 8. That’s good news for small businesses that decided not to apply earlier because they did not think they would be able to open for business and use the funds during the mandated period.

Check out all the answers from our credit card experts.

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What is the Paycheck Protection Program?

The PPP is part of the Coronavirus Aid, Relief and Economic Security (CARES) Act. It offers small businesses a forgivable loan to cover eight weeks of payroll, plus an additional 25% of that amount for business rent, business mortgages, business mortgage interest or business utilities, provided they kept their employees on payroll or called them back. The Small Business Administration’s website explains how to calculate your maximum loan amount.

How does it work?

The amount to cover payroll costs is capped at $20,833 per individual if you are spending the money on payroll and other costs over a 24-week period. If you choose an option to spend it over an eight-week period, it is capped at $15,385 per individual.

Some business owners have been reluctant to borrow PPP money because they do not like to carry debt in their business. However, with the coronavirus spreading in some states, and some businesses being forced to close after opening for a short time, having cash in the bank could be a lifeline.

The loan terms are much more favorable than the traditional financing many business owners get through banks and alternative lenders. The interest rate is 1%, and loans issued after June 5 have a maturity of 5 years.

Loan payments are deferred for six months, and there is no collateral or personal guarantee required – a very attractive feature for those who would be reluctant to list their home as collateral. The government and lenders are not allowed to charge small business owners any fees.

See related: 8 small business grants that can help you stay afloat

Who is eligible?

Most small business owners are eligible for the program, including sole proprietors. The program offers loans to cover payroll, rent and utilities. A minimum of 60% of the money must be used to cover payroll. The money must be used over 24 weeks.

As of June 30, the program had awarded 4,856,647 loans worth $520,629,017,523 to small businesses. The average loan size was $107,199. However, $130 million in funds set aside for small business relief had not been allocated at the time the application period was extended.

One criticism of the program has been that the banks that initially distributed the funds focused on getting the money to their business banking customers. However, as the program was rolled out, financial tech companies got into the action.

Borrowers can apply through many banks or through fintechs such as IvyLender, Kabbage, Nav, PayPal and Square. The SBA’s website includes a list of participating lenders by state.

See related: New business financing sources to try when the bank says no

Bottom line

If you plan to apply, it pays to have your bookkeeper or accountant to get your books in order. Lenders need to understand how much money your business actually makes and how much you pay yourself and any employees.

Lenders can offer one-on-one guidance on what type of documentation you need to supply. That good record keeping will come in handy once you have used the funds appropriately and are ready to fill out the paperwork required for loan forgiveness.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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