How the Payroll Protection Program Works

Small businesses can now apply for the Payroll Protection Program, which is a forgivable loan that can be used for payroll, rent, mortgages, and more for 8 weeks after being approved. Learn more about how to apply through your bank and calculating the amount you're eligible for.

The Payroll Protection Program (PPP) Explained

According to the U.S. Department of the Treasury, "the Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone."

The Treasury further states on its information sheet that:

"The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months."

Applying for the PPP

Yesterday, April 3rd, was the first day to apply for the PPP. Many banks either were not ready or were overwhelmed as the treasury only provided final guidance late Thursday. Here is what InstaPay knows about the program.

The best place to apply for a PPP is your bank. According to Brian Moynihan, CEO of Bank of America, “We have a million borrowing customers we're trying to get through the system first. …for those that borrow from the other 4,000 banks in the country, we're trying to get them to go back to their bank, which is the priority the treasury put on it.”

If your bank isn’t participating, you can find a list of the most active SBA lending banks here.

We believe most of our clients are small businesses or sole proprietors, and you can apply now. There has been a delay for independent contractors or self-employed individuals until April 10. If you have a business checking account, and a separate tax ID, then you are likely a small business. If you fill out a Schedule C on your federal tax return, you are likely a sole proprietor.

How do I figure out how much I can borrow?

For sole proprietors, you can use your tax return. For example:

If your yearly income is $1000 (usually line 7 on your 1040 tax return), your loanable amount is: $2,083.33

Divide your yearly income by 12 (number of months in the year):

10,000/12 = 833.33

Then multiple that amount by 2.5:

833.33 x 2.5 = 2,083.33

That is your total loanable amount through PPP.

If you are a larger fleet, you can add up all your driver pay and add that to the salary you pay the office staff. Take that total and divide by 12 and multiply by 2.5. You have to exclude FICA, FUTA, and federal withholding before you make the calculation.

You will also need some proof of your past income. For a sole proprietor, if you have already filed your 2019 taxes, you can use that tax return. If you don’t have your taxes done yet, you must ask the loan officer at your bank for assistance.

Please be sure to take advantage of this program! To read about the coronavirus stimulus package, click here.