March 16, 2021

What You Need to Know About the Paycheck Protection Program

The term “Paycheck Protection Program” may sound like you’re sending your paycheck into witness protection or guarding it against theft, but it’s actually a relief program intended for small businesses to continue paying their employees during the COVID-19 pandemic.

Countless people have lost their jobs since the pandemic began in March 2020, so the US government created the Paycheck Protection Program (PPP) as an addition to the CARES Act the following April. The government initiated a second round of funding in December 2020. Here’s what you need to know about the Paycheck Protection Program:

How Does the Paycheck Protection Program Work?

If you’re a small business owner who is on the verge of needing to layoff employees because the pandemic has impacted your cash flow, or you have already had to layoff employees and wish to hire them back, you can apply for a loan from the Paycheck Protection Program to continue paying your workers.

PPP loans are SBA loans, meaning the Small Business Administration backs them, and funds do not come from the government directly. You can visit the Paycheck Protection Program’s main website to match with a lender or find one in your local area.

According to the Paycheck Protection Program rules, the most significant condition of receiving a loan is that 60% must go toward payroll and providing employee benefits. You may use the other 40% for overhead costs, including mortgage, rent, and utility payments, as long as respective agreements were signed or services began before February 15th, 2020. Note that compensation for individual employees is capped at $100,000 annually.

Though the PPP provides loans with an interest rate of 1% and a two-year maturity rate, funds are not loaned to employees themselves. Business owners must apply to the program and meet eligibility requirements. If you are an employee, your employer should continue paying you as usual, and you will never owe anything back.

That said, pay cycles may not always align with bills, so if your employees need their pay, tell them they can use an app like Earnin to access their paycheck for hours already worked before their next payday.

Who is Eligible for the Paycheck Protection Program?

Almost all small businesses and sole proprietorships are eligible for the Paycheck Protection Program. Self-employed individuals may also be qualified. Keep in mind that the criteria sometimes changes, though — in February 2021, President Biden announced adjustments to the program in an effort to reach the smallest businesses, so only organizations with fewer than 20 employees were eligible between February 24th and March 9th, 2021.

There are also two loan types to be aware of: first and second draw. If you have not applied for a PPP loan since the program’s inception, then your loan would be “first draw.” If your business is still struggling and has experienced at least a 25% reduction in revenue, then you may be eligible for an additional loan, known as “second draw.”

Who is Eligible for Loan Forgiveness?

Are you worried about taking out a loan to pay your employees because you’re wary of loans in general? Don’t be — one of the best perks of the Paycheck Protection Program is that many of its loans are forgivable.

First and Second Draw loans are likely eligible for complete forgiveness if you:

  1. Apply for forgiveness within 24 weeks of signing for your loan.
  2. Maintain employee compensation levels.
  3. Spend proceeds as the PPP’s terms dictate (i.e., putting 60% toward payroll).

Keep a careful record of all your spending. You’ll need to prove you adhered to your loan’s terms when you contact your lender and apply for forgiveness. If you cannot verify your expenses or renege on any of the loan’s specifications (such as significantly reducing your employees’ wages), not all of the amount you borrowed will be forgiven. Should you fail to follow the terms or don’t apply for forgiveness, your loan will be due within two years.

Paycheck Protection Program Application Information

To apply for the PPP, visit the program’s website or fill out a First Draw Paycheck Protection Program application here.

For loan approval, you’ll need the following documentation:

  • Proof that you need the funds to pay your employees;
  • Verification that you will use the funds as the terms dictate;
  • Payroll and business expense information;
  • Payroll records;
  • Relevant tax filings;
  • Consent to receive the amount your lender calculates based on said tax documents;

And more. Hurry up and apply for the Paycheck Protection Program if you haven’t already — the program will only offer loans until March 31st, 2021.

Paycheck Protection Program loan terms are the same for everyone. If you operate a small business and need assistance keeping your workers employed during this uncertain economic time, then the PPP could provide you with necessary relief that won’t hurt you in the long run if you follow its guidelines and spend your funds wisely.


Photo by Richard Balog on Unsplash

Please note, the material collected in this blog is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or Services.

You may enjoy

New Study: Earned Wage Access Puts Consumers in Control of Finances, and Life
New Study: Earned Wage Access Puts Consumers in Control of Finances, and Life
Eight in 10 workers found Earned Wage Access to be essential to their financial & emotional well-being during the COVID-19 pandemic.
Everything You Need To Know About Earned Wage Access
Everything You Need To Know About Earned Wage Access
Why wait until payday when you can get instant access to your earned wages instead? Learn why everyone using Earned Wage Access is raving about it.
What is On Demand Pay: Understanding What It Means for Employers and Employees
What is On Demand Pay: Understanding What It Means for Employers and Employees
What is on-demand pay you ask? Well you're in luck. We define the idea and show how it can help meet the financial needs of employers + their employees.
What You Need to Know About the Paycheck Fairness Act
What You Need to Know About the Paycheck Fairness Act
If enacted into law, the Paycheck Fairness Act would provide legal protections and other provisions for ending gender-based wage discrimination.
Weekly, Monthly & More: How Your Pay Schedule Affects You
Weekly, Monthly & More: How Your Pay Schedule Affects You
Monthly, bi-monthly, bi-weekly, and weekly pay schedules determine when employees get paid, so it’s important to know how yours affects your budget.
The Economic Impact of COVID-19 on Workers in Real Time
The Economic Impact of COVID-19 on Workers in Real Time
Stay informed with real-time insights on the economic impact of COVID-19 on workers. Learn more about EarnIn's values and approach on our blog.
Why Do We Only Get Paid Every Two Weeks?
Why Do We Only Get Paid Every Two Weeks?
Why Do We Only Get Paid Every Two Weeks?
Why Do We Only Get Paid Every Two Weeks?
EarnIn applauds Missouri for signing Earned Wage Access legislation
EarnIn applauds Missouri for signing Earned Wage Access legislation
Conventional Loan Requirements for Mortgages: Do You Qualify?
Conventional Loan Requirements for Mortgages: Do You Qualify?
Explore the essentials of conventional loan requirements for mortgages and see if you qualify. Our comprehensive guide will tell you what you need to know.
Worried About Coronavirus? Here Are Resources to Help You Stay Safe
Worried About Coronavirus? Here Are Resources to Help You Stay Safe
Worried About Coronavirus? Here Are Resources to Help You Stay Safe
Worried About Coronavirus? Here Are Resources to Help You Stay Safe
Activehours, Inc. NMLS #2535570
EarnIn US1 LLC NMLS #2567882

EarnIn is a financial technology company, not a bank. Bank products are issued by Evolve Bank & Trust, Member FDIC. The EarnIn Card is issued pursuant to a license from Visa USA Inc.

Download on the App Store
4.7 +189K ratings
Download on Google Play
4.6 +200K ratings