What Businesses Qualify for a PPP Loan?

Do we even remember a world before Covid-19? It has been such a whirlwind couple of months for many businesses, where years of blood, sweat, and tears have been swept out from beneath them.

PPP paycheck protection program - image for article
Created by Market Business News using material from https://www.sba.gov/

In an attempt to stop the spread of the virus, government leaders required people to stay at home and for businesses to shut down.

But legally, a government can not force businesses to modify their operations – and thus prevent them from making revenue – unless they offer an appropriate alternative to help these businesses stay afloat.

This is where PPP – also known as the payment protection program—came into play. For businesses that were going to suffer financial hardships because of Covid-19,  they would be eligible to receive government-funded subsidies to help them stay afloat during this period.

As a result, the US government passed a two trillion-dollar stimulus package in an attempt to save as many businesses as possible! But as with any program, a certain set of criteria must first be met before getting relief money for the business.

What is a PPP loan?

First things first, let us further answer the question that many businesses still ask – what is a payment protection program?

In short, it is a loan program that is set up for businesses to survive the economic hardships of Covid-19. There are billions of dollars in this communal pool that can be accessed by any business in need during the pandemic. In order for the business to qualify for the PPP loan, they must have no more than 500 employees, employ a set level of employment of these staff and can borrow no more than 2.5x the average payroll costs.

Can a PPP loan be used to cover rent?

Chances are, that a business trying to survive Covid-19 are not just struggling to pay their staff. They are also struggling to pay their rent!

To many, businesses, this is even more frustrating because they are paying for a space that they are not even allowed to use during this period of time. So that brings us to two very important questions.

1. Do businesses still have to pay rent?

Unfortunately, yes. They have signed a commercial lease agreement that binds them to make their payments on time and that there is a very unlikely chance their lease outlined any loopholes for ways to get out of paying rent during a pandemic. And that is totally fair enough—as landlords still need to make money too!

2. Can a PPP loan pay the commercial rent?

Thankfully, yes! However, businesses must be careful when making this decision and equally aware of the potential aftermath they must face. A PPP loan is in fact, a loan. Therefore, the business is expected to pay that loan back at some point in time, just like any other loan. Using a PPP loan for rent costs will likely exempt them from being eligible for PPP loan forgiveness. According to the Treasury information about the PPP loan scheme, loan forgiveness will go to those businesses that use at least ¾ of the loan for paychecks and keeping their staff employed.

If you are a business that is eligible for a PPP loan and wanting to understand how best you should utilize those funds, it is always recommended to consult a team of expert professionals to help you navigate your way through the process.

Businesses have suffered enough, so the last thing we’d want any business to endure after Covid-19 is the burden of paying back the PPP loan. If the funds are utilized correctly and the correct advice as taken onboard, businesses will have a better chance of keeping their business afloat, their team employed, and their debt to an absolute minimum.

Interesting related article: “What is Business Finance?