PPP Loan Basics for Small Business Owners

Although uncertainty and confusion have surrounded the Paycheck Protection Program since its launch, that shouldn't stop small business owners from participating in the loan program, which was just extended to May 31.

picture of post-it note with "PPP 2021" written on it
(Image credit: Getty Images)

COVID-related shutdowns and restrictions have hit small businesses particularly hard. Many of them have closed permanently, while others are hanging on by their fingernails. Fortunately, there is some help available through the Paycheck Protection Program (PPP), which was first introduced in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Under the PPP, small businesses can get up to 24 weeks of cash flow assistance through federally guaranteed loans. Plus, the loans can be forgiven to the extent the proceeds are used for payroll and certain other expenses during the COVID-19 pandemic. Borrowers can apply for a PPP loan through any existing Small Business Administration 7(a) lender or through any federally insured bank, credit union, eligible nonbank lender, or Farm Credit System institution that is participating in the program.

The PPP has an up-and-down history, though. For instance, initial PPP funding – roughly $349 billion – was exhausted just a few days after the program was launched. Some mom-and-pop businesses had a hard time getting loans, too. But Congress later provided an additional $310 billion in funding and made important changes to the program, such as allowing more time to spend the loan proceeds and making it easier to get a loan fully forgiven. However, new PPP loan applications then were halted on August 8, 2020 – until a second stimulus package was signed into law in December 2020 that restarted the program with an additional $285 billion in funding. The law also opened up a second PPP loan for businesses that used up all the proceeds of their first PPP loan. The relief bill signed into law on March 11, 2021, injected an additional $7.25 billion into the program.

As it stands right now, the PPP will run until May 31, 2021, or until funds are exhausted, whichever occurs first. So, there's still time to tap into this form of assistance. Although uncertainty and confusion have surrounded the PPP since its launch, that shouldn't stop small business owners from participating in the program. Yes, there are a lot of rules and procedures you need to follow. But getting familiar with the PPP basics is a good place to start. That's what the following overview is designed to do.

Rodrigo Sermeño
, The Kiplinger Letter

Rodrigo Sermeño covers the financial services, housing, small business, and cryptocurrency industries for The Kiplinger Letter. Before joining Kiplinger in 2014, he worked for several think tanks and non-profit organizations in Washington, D.C., including the New America Foundation, the Streit Council, and the Arca Foundation. Rodrigo graduated from George Mason University with a bachelor's degree in international affairs. He also holds a master's in public policy from George Mason University's Schar School of Policy and Government.