How to apply for a Paycheck Protection Program (PPP) loan: Step-by-step guide

The Paycheck Protection Program (PPP) was launched to combat the financial hardship endured by many small businesses in the wake of the COVID-19 pandemic. The potentially-forgivable loan program has extended a financial lifeline worth up to 2.5 times monthly payroll costs to struggling businesses.

Given the speed of the rollout and the changing nature of the program (requirements have changed slightly with every iteration), you may feel uncertain about how to even begin the PPP application process. This list will outline everything you need to do to apply for a PPP loan. 

1. Check Your Eligibility

The first step you want to take is to determine whether or not you’re eligible for a PPP loan. 

Qualifications

To qualify, you must meet the following requirements: 

• – Your business was in operation as of February 15, 2020 (businesses that started after February 15, 2020, are ineligible)
• – You employ 500 or fewer individuals
• – You’re an independent contractor, sole proprietor, self-employed individual, or business partner (a maximum of one PPP application can be submitted per partnership)
• – You meet the SBA’s definition of a “small business concern.”
• – Your business was in operation as of February 15, 2020 (businesses that started after February 15, 2020, are ineligible)
• – You employ 500 or fewer individuals
• – You’re an independent contractor, sole proprietor, self-employed individual, or business partner (a maximum of one PPP application can be submitted per partnership)
• – You meet the SBA’s definition of a “small business concern.”

Certifications

In addition to these qualifications, you must also certify that:

• – Your request is necessary due to economic uncertainty
• – You will use the funds on allowed uses (to retain workers, maintain payroll, and/or make payments on mortgages, leases, and utilities)
• – You don’t currently have a PPP or EIDL loan application for the same purpose over the same period
• – Between February 15, 2020, and December 31, 2020, you didn’t receive a PPP loan or EIDL for the same purpose over the same period

2. Second Draw: How It works and qualifications

In the 2021 round of PPP, the SBA opened PPP applications so borrowers who previously received a First Draw through PPP could apply for a Second Draw.

Through the Second Draw, borrowers can receive an additional 2.5 times worth the cost of monthly payroll expenses. For qualifying businesses (if you have a NAICS code beginning in “72”), borrowers may qualify for up to 3.5 times their monthly payroll costs. 

3. Calculate your payroll costs

Prior to applying for your PPP loan, you want to calculate your monthly payroll expenses. You can apply for a PPP loan of up to 2.5 times your monthly payroll expenses based on your monthly payroll costs.

The following costs can be included in your calculations:

• – Compensation: salary, wages, commissions (or similar compensation), cash tips (or equivalent)
• – Paid time off: vacation, sick leave, medical leave, family leave, parental leave, etc. 
• – Healthcare costs: payments toward group healthcare benefits, including insurance premiums
• – Allowances for dismissal or separation
• – Retirement benefit payments
• – State and local payroll taxes

4. Collect the required documentation before you apply

Collecting the necessary documentation is the most complicated, labor-intensive step of applying for a PPP loan.

To make your application process—and therefore your life—easier, we highly recommend collecting these documents before you apply. You might also consider compiling them in a folder on your laptop for easy access during the application and throughout the rest of the loan process. Then, it’ll be a cinch to retrieve them if your lender or the SBA has questions down the road.

In addition to meeting the general requirements for PPP, you must also meet the following to qualify for a Second Draw:

• – You previously received a First Draw through the PPP program
• – You employ 300 or fewer individuals
• – You have used—or will use—the full amount of your PPP loan
• – You only used—or will use—your First Draw loan on allowed uses
• – You must have experienced a revenue reduction of 25% or more in 2020 (compared to 2019)

For every business type

• – Government ID: You’ll need a copy of a government-issued ID for all owners with a 20% or greater share in the business
• – Proof you were in business before February 15, 2020: For businesses with W2 employees, you’ll need IRS Form 941 from Q1 2020 or a third-party payroll processing report from February 2020. For businesses without W2 employees, you’ll need a February 2020 bank statement or a customer invoice from the same month. 
• – Tax documentation: You’ll need to provide the document your business uses when filing taxes (Form 1065, Form 1120, Form 1120-S, or Form 1040 with a Schedule C. If none of these are available, you’ll need to submit a full business tax return)
• – Proof of payroll costs: If your business employs W2 workers, you’ll need to submit either W2s and W3s for all employees, IRS Form 944, IRS Form 941 (for all 4 quarters), or a payroll processing report from a third party.

5. Complete the application

You’ve done the homework, so now this part should be a breeze. Use your collected documentation to complete the application through the marketplace, bank, or lender of your choosing. 

6. Keep an eye out for communications from your lender

Once you’ve applied, you want to keep an eye on communications from your lender. If anything is missing from your application, they should let you know. You’ll want to correct those issues right away. If a lender is unable to fund a loan due to a borrower-caused delay, it’s possible the loan may be canceled. You’ve come too far to let that happen, so be sure to prioritize communication with your lender.