Skip to headerSkip to main contentSkip to footer
Get our Free E-newslettersGet our Free E-newsletters
Kiplinger logoLink to homepage
Get our Free E-newslettersGet our Free E-newsletters
Subscribe to Kiplinger
Subscribe to Kiplinger
Save up to 76%
Subscribe
Subscribe to Kiplinger
  • Store
  • Home
  • Investing
  • Retirement
  • Taxes
  • Personal Finance
  • Your Business
  • Wealth Creation
  • More
    • Podcasts
    • Economic Outlooks
    • Tools
  • My Kiplinger
    • Kiplinger's Personal Finance Magazine
    • The Kiplinger Letter
    • The Kiplinger Tax Letter
    • Kiplinger's Investing for Income
    • Kiplinger's Retirement Report
    • Store
    • Manage My E-Newsletters
    • My Subscriptions
  • Home
  • business
  • small business
  • small business loans
small business loans

Answers to PPP Loan FAQs (Now That There's Fresh Funding for the Loans)

Small business owners are getting another crack at Paycheck Protection Program loans. Here are answers to some frequently asked questions about the loans.

by: Rodrigo Sermeño
July 21, 2020

Getty Images

The Paycheck Protection Program (PPP), which was created by the Coronavirus, Aid, Relief, and Economic Security (CARES) Act, ran out of its initial funding of roughly $349 billion just a few days after the program launched on April 3. Last week, Congress approved another $310 billion for PPP loans.

The fresh funding means many small-business owners will have a second chance at getting a PPP loan that could help them keep their companies afloat. Businesses will be able to apply for PPP loans again starting on April 27.

Uncertainty and confusion have surrounded the PPP since its launch—especially with respect to eligibility, payroll costs, and debt forgiveness. Hopefully, the answers below to common question about the PPP loans will help small business owners who are seeking financial support right now. The country needs our small businesses to bounce back as quickly as possible, and PPP loans are a big part of the plan to make that happen.

  • What Small Businesses Must Know About the SBA's New Stimulus Loans

1 of 9

Eligibility Based on Size of the Business

Getty Images

Question: Are small businesses required to have 500 or fewer employees to be eligible for PPP loans?

Answer: No. The Small Business Administration (SBA) says businesses can be eligible for PPP loans even if they have more than 500 employees. For example, a business with more than 500 workers can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry.

A business can also qualify for a PPP loan as a small business if it met both tests in the SBA's "alternative size standard" as of March 27, 2020:

  • The maximum tangible net worth of the business is not more than $15 million; and
  • The average net income after federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.
  • 7 CARES Act Tax Breaks for Businesses

2 of 9

Annual Compensation Over $100,000

Getty Images

Question: The CARES Act excludes annual employee compensation in excess of $100,000 from the definition of payroll costs. Does that exclusion apply to all employee benefits of monetary value?

Answer: No. The exclusion of annual compensation in excess of $100,000 applies only to cash compensation, not to non-cash benefits, such as employer contributions to retirement plans.

  • 11 Ways the CARES Act and Other Government Measures Could Help You in 2020

3 of 9

Sick Leave

Getty Images

Question: Do PPP loans cover paid sick leave?

Answer: Yes. PPP loans cover payroll costs, including costs for employee vacation, parental, family, medical and sick leave. But sick and family leave wages are excluded for which a credit is allowed under certain sections of the Families First Coronavirus Response Act.

  • 37 Major U.S. Companies Hiring Now to Meet Coronavirus Demand

4 of 9

Payroll Cost Exclusions

Getty Images

Question: Is there anything that is expressly excluded from the definition of payroll costs?

Answer: The CARES Act excludes the following:

  • Compensation of an employee whose principal place of residence is outside the U.S.;
  • Compensation of an individual employee exceeding $100,000 for the year; and
  • Federal employment taxes imposed or withheld between February 15, 2020, and June 30, 2020.
  • 10 States Most Unprepared for This Deep Recession

5 of 9

Payments to Independent Contractors or Sole Proprietors

Getty Images

Question: Should payments that an eligible borrower made to an independent contractor or sole proprietor be included in calculations of the borrower's payroll costs?

Answer: No. Amounts paid to an independent contractor or sole proprietor should be excluded. However, an independent contractor or sole proprietor is eligible for a PPP loan if he or she satisfies the applicable requirements.

  • 38 Ways to Earn Extra Cash With a Cool Side Hustle

6 of 9

Start of 24-Week Period

Getty Images

Question: How much of a PPP loan that is forgiven depends on the borrower's payroll costs over a 24-week period. When does that 24-week period begin?

Answer: The 24-week period begins on the date the lender makes the first disbursement of the PPP loan.

Please note that borrowers who got their loans before June 5, 2020, have the option to use an eight-week period, which was the original spending period under the CARES Act, instead of the newer 24-week period.

  • The Coronavirus at Work: Your Legal Questions Answered

7 of 9

Tax Deductions for Expenses

Getty Images

Question: Can a business claim a tax deduction for expenses that result in forgiveness of a PPP loan?

Answer: No. A tax deduction is generally available for all ordinary and necessary expenses paid or incurred during the year in carrying on any trade or business. Business-related payroll costs, mortgage interest, rent, and utilities are, therefore, normally deductible. However, no deduction is allowed for any expense that is otherwise exempt from tax. This prevents a double tax break.

Loan proceeds properly used (according to the CARES Act rules) for payroll, mortgage interest, rent, and utilities do not have to be repaid. In addition, income associated with PPP loan forgiveness is exempt from tax under the CARES Act. As a result, to prevent duplicate tax breaks, expenses that result in PPP loan forgiveness are not deductible.

  • Tax Changes and Key Amounts for the 2020 Tax Year

8 of 9

Larger Companies

Getty Images

Question: Do businesses owned by large companies with adequate sources of liquidity to support the business's ongoing operations qualify for a PPP loan?

Answer: Probably not. Borrowers must certify in good faith that their PPP loan request is necessary to support their ongoing operations, taking into consideration their current business activity and their ability to tap other sources of funding. According to the SBA, "it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith."

  • 12 Ways COVID-19 Will Change the Tech Industry

9 of 9

Seasonal Businesses

Getty Images

Question: Is a seasonal business that was not fully ramped up on February 15, 2020, still eligible for a PPP loan?

Answer: Yes. The SBA says that in evaluating a borrower's eligibility, a lender may consider whether a seasonal business was in operation on February 15, 2020, or for an eight-week period between February 15, 2019, and June 30, 2019.

  • 15 States That Don't Tax Unemployment Benefits
  • Coronavirus and Your Money
  • small business loans
  • small business
  • business
Share via EmailShare on FacebookShare on TwitterShare on LinkedIn

Recommended

Retirees' Guide to Do’s and Don’ts of Business Partnerships
Making Your Money Last

Retirees' Guide to Do’s and Don’ts of Business Partnerships

Know some of the business partnership pros and cons before diving in. A business partnership agreement is a good place to start.
January 11, 2021
Loose Lips Sink Ships and Can Damage Your Company’s Reputation
small business

Loose Lips Sink Ships and Can Damage Your Company’s Reputation

If a member of the media calls your company, will the employee who answers the phone know how to handle things? Or will they make your company look ba…
January 7, 2021
15 Best Foreclosure Sites for Finding Properties
Making Your Money Last

15 Best Foreclosure Sites for Finding Properties

If you’re searching for foreclosures for sale for your next home or to flip for a profit, these websites will guide you to foreclosures to buy.
January 6, 2021
A Second Round of PPP Loans is Coming (With Some Improvements)
Coronavirus and Your Money

A Second Round of PPP Loans is Coming (With Some Improvements)

PPP loans are getting a second life. There will be some helpful changes, like tax deductions for expenses paid with forgiven loan proceeds.
December 23, 2020

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your second stimulus check.
January 18, 2021
When Could We Get a Third Stimulus Check?
Coronavirus and Your Money

When Could We Get a Third Stimulus Check?

President Biden and others in Congress are pushing for a third-round of stimulus checks, but it might be a while before we get them.
January 20, 2021
6 Reasons Why Your Second Stimulus Check Might Be Delayed
Coronavirus and Your Money

6 Reasons Why Your Second Stimulus Check Might Be Delayed

The IRS started delivering second-round payments in December. If you're still waiting for your money, here's why your second stimulus check could be l…
January 18, 2021
  • Customer Service
  • About Us
  • Advertise With Us (PDF)
  • Privacy Policy
  • Cookie Policy
  • Kiplinger Careers
  • Accessibility
  • Privacy Preferences

Subscribe to Kiplinger's Personal Finance

Be a smarter, better informed investor.
Save up to 76%Subscribe to Kiplinger's Personal Finance
Dennis Publishing Ltd logoLink to Dennis Publishing Ltd website
Do Not Sell My Information

The Kiplinger Washington Editors, Inc., is part of the Dennis Publishing Ltd. Group.
All Contents © 2021, The Kiplinger Washington Editors

Follow us on InstagramFollow us on FacebookFollow us on TwitterConnect on LinkedInConnect on YouTube