SBA small-business loans: 8 things to know about the Paycheck Protection Program

March 31, 2020, 10:33 PM UTC

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The $2.2 trillion coronavirus stimulus bill signed into law by President Donald Trump last week set aside $349 billion for a new small-business loan program.

If small businesses maintain payroll during this economic crisis, some of the money borrowed through the newly created Paycheck Protection Program can be forgiven. The goal is to help small-business owners and their employees ride out this economic storm.

We learned more details Tuesday on the $349 billion effort, called the Paycheck Protection Program—which is larger than the GDP of Arizona—from Treasury Secretary Steven Mnuchin and the U.S. Small Business Administration (SBA). A senior government official said it is possible millions of loan applications could roll in on Friday when these loans become available.

Here’s what prospective small-business loan applicants need to know.

Who is eligible for the SBA’s Paycheck Protection Program? What are the qualifications?

Small businesses with fewer than 500 employees are eligible to apply to the Paycheck Protection Program. These include firms that are nonprofits. It also includes sole proprietorships, self-employed individuals, independent contractors (a.k.a. gig economy workers), and veteran organizations.

Borrowers must certify that their business has been affected by the coronavirus slowdown. And businesses must have been in operation as of Feb. 15 to be eligible to apply.

Lenders will not require collateral or a personal guarantee.

When can I apply?

Treasury Secretary Mnuchin said Tuesday that small businesses will be able to start applying for the Paycheck Protection Program loans on Friday. Loans will be given on a first-come, first-served basis, according to a senior SBA official.

How much can be borrowed?

The Paycheck Protection Program provides small businesses loans that can be up to 2.5 times the borrower’s average monthly payroll costs. The amount that can be borrowed tops out at $10 million. The date range for calculating that average cost is different for seasonal businesses, nonseasonal businesses, and firms that opened in 2020.

Payroll costs include everything from salaries, bonuses, and retirement benefits to parental leave and health care benefits. The portion of employee salary in excess of $100,000 is excluded in the payroll calculation.

Do I have to pay the loan back?

Borrowed money used for expenses relating to payroll, mortgage interest, rent, or utilities in the eight weeks following the date of origination can be forgiven. That means business owners will not have to pay the government back the full principal amount of the money borrowed. Borrowers will need to provide documentation of these expenses in their loan forgiveness application. A decision on forgiveness of the Paycheck Protection Program loan will be made within 60 days of forgiveness submission.

“The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses,” said Treasury Secretary Mnuchin.

The forgiven money will be reduced for employers that lay off employees or reduce wages by more than 25%.

Laid-off employees must be rehired by June 30 for companies to recoup their wages through loan forgiveness, according to a senior SBA official.

How do I apply for the SBA’s Paycheck Protection Program?

Borrowers can apply for these federally backed loans at the more than 1,800 banks that already offer Small Business Administration loans. However, the number of lenders offering loans through the Paycheck Protection Program will end up being greater and includes many more traditional banks, credit unions, and fintech firms. The first step prospective borrowers should take is contacting their current bank.

“Businesses can go to a participating SBA 7(a) lender, bank, or credit union, apply for a loan, and be approved on the same day,” Mnuchin said.

There is no cost to apply for this loan, but businesses will be charged a fixed interest rate.

What interest rates will be charged?

Money borrowed from the Paycheck Protection Program will have a 0.5% fixed interest rate. The first payment is deferred for six months.

How long will it take to receive the loan?

The loans will be approved far more quickly than previous SBA-backed loans. A senior government official said these “stripped down” applications will not require SBA approval and funds could be made available on the same day you apply.

Should I apply—and is it a good deal for my small business?

It’s an incredible deal for small businesses, contractors, and self-employed folks. A forgivable loan like this should help small businesses retain payroll during the coming weeks when they’re likely to watch sales continue to dry up. For more information, here are two fact sheets published by the U.S. Chamber of Commerce and the SBA.

Editor’s Note: If you’d like to share your small-business story or expertise with Fortune’s Lance Lambert, please reach out via email to or on Twitter at @NewsLambert.

More must-read finance coverage from Fortune:

Even with the Paycheck Protection Program, small-business owners say it’s not enough to ensure they can survive
—Millions of Americans won’t be able to pay their bills this month. What financial experts advise
—What to know about the coronavirus stimulus checks
—Social distancing creates $8 trillion in economic benefits, study says
Everything you need to know about furloughs—and what they mean for workers
—The lessons learned from the past 3 bear markets
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—WATCH: The U.S. tax deadline was pushed from April 15 to July 15

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