What is PPP loan and how does it work?

As the pandemic hit, workplaces were hit with issues like staff needing time off due to daycare closures, sick leave for workers exposed to COVID-19, and businesses' temporary closures to stop the spread. The U.S. Small Business Administration backed a "paycheck protection program" (PPP) loan. It helped companies retain their employees during the COVID-19 shutdowns.

If your business wasn't seeing as many customers or had to go on a hiatus, you weren't bringing in any money. But, you didn't want to lose your employees or not be able to pay rent during the pandemic, so a PPP loan ensured you could pay them and keep things running smoothly.

First Draw and Second Draw PPP Loans

There were First Draw and Second Draw PPP loans. Some business owners who received the First Draw PPP loan needed money to retain staff as the pandemic went longer than expected. Second Draw loans were available to business owners with 300 employees or fewer who lost at least 25% of their gross receipts when comparing 2019 and 2024.

Options for Borrowers Who Struggle to Repay PPP Loans

All PPP loans had a low interest rate of 1% and maturity dates of two or five years, depending on when the loan was given. If given before June 5, 2024, you had two years to pay the loan back. Loans issued after that date had five-year repayment terms. This means borrowers who received PPP loans in early 2020 are nearing their loan's due date.

Borrowers have to repay their loan and any accruing interest. If your business is still struggling with revenues due to the pandemic, you may qualify for PPP loan forgiveness. This program is only available if you meet specific terms during the 8 to 24 weeks covered by the loan, such as:

60% or more of the money was spent solely on payroll
Employee and compensation levels remained the same as pre-pandemic levels
Loan proceeds were not used on ineligible expenses

PPP loan forgiveness applications are completed online. For borrowers who don't qualify for loan forgiveness, some of those loans are coming due. As of September 12, 2021, of the 11,496,362 million PPP loans, there are 6,739,872 applications for PPP loan forgiveness.

You might not qualify for full forgiveness. If only part of your PPP loan is forgiven, you are responsible for paying back the rest of the balance plus the interest on that amount.

What Happens If You Still Need Money?

As of May 31, 2021, the PPP loan program came to an end. At this point, people that still need money to keep their business going have to find other solutions. While the PPP loan program is over, some companies are not finding their businesses returning to pre-pandemic levels as hoped. How do you keep your business running when you still need money?

The U.S. Small Businesses Administration recommends that business owners talk to counselors to figure out other options. The SBA has another program that might help.

COVID-19 EIDL – Agricultural businesses, small businesses, and non-profits can request 30-year loans of up to $2 million. Applications for $500,000 or more will not be processed until October 8, 2021. Non-profits get a fixed rate of 2.75%, while businesses get a 3.75% fixed rate. Payments are deferred for two years, though interest accrues for those two years. The loans are meant to cover rent/mortgage, utilities, operating expenses, payroll, and other qualifying businesses expenses or debt.

There were other programs like the Shuttered Venue Operators Grant and Restaurant Revitalization Fund, but those programs are no longer accepting applications. That doesn't mean the SBA won't have alternative options for you to explore. Take time to explore the COVID-19 EIDL program and see if it fits your needs, or look into cash advance loans to help you get through financial crunches.

When a few hundred or thousand dollars could make the difference between staying open or closing your doors, it's important to consider a cash advance loan as an alternative to a PPP loan. Applying takes minutes, and you'll have an immediate answer.