How Much Was a Paycheck Protection Program Loan?

The Paycheck Protection Program (PPP) was a federal initiative created to help businesses maintain their workforce during the economic disruption caused by the COVID-19 pandemic. Established under the CARES Act in 2020, its primary objective was to provide a direct incentive for small businesses to keep employees on their payroll. The program offered forgivable loans, allowing businesses to manage operational expenses and retain staff.

Determining Loan Amounts

PPP loan amounts were primarily calculated based on a business’s average monthly payroll costs. Eligible businesses could borrow up to 2.5 times their average monthly payroll, aiming to cover approximately 2.5 months of payroll support. First-draw loans had a maximum of $10 million, and second-draw loans were capped at $2 million.

Payroll costs included salaries, wages, commissions, and tips, up to an annualized cap of $100,000 per employee. Beyond direct compensation, these costs also encompassed employer contributions to health insurance, retirement plans, and state and local taxes assessed on employee compensation. For self-employed individuals, sole proprietors, or independent contractors, the calculation involved their 2019 or 2020 gross income or net profit, up to the $100,000 annualized limit. Some specific business types, like hotels and restaurants, could potentially borrow up to 3.5 times their average monthly payroll costs for second-draw loans.

Understanding Loan Forgiveness

PPP loans offered the potential for full or partial forgiveness, effectively turning the loan into a grant. To qualify, businesses were required to use a substantial portion of the funds for payroll costs. Initially, 75% of the forgiven amount needed to be spent on payroll, but this was later adjusted to at least 60%. If less than 60% was used for payroll, the forgiveness amount would be proportionately reduced.

The “covered period” for using funds for eligible expenses was generally between 8 and 24 weeks following loan disbursement. In addition to payroll, certain non-payroll costs also qualified for forgiveness, including business mortgage interest payments, rent, and utility payments, provided these obligations existed before February 15, 2020. Reductions in employee headcount or salaries could impact the amount of loan forgiveness. Specifically, if an employee’s salary was reduced by more than 25% or if full-time equivalent (FTE) employee levels decreased, the forgiveness amount could be lowered.

General Program Requirements

The PPP was open to a wide range of entities, including small businesses, non-profit organizations, sole proprietors, and independent contractors. Eligibility required having 500 or fewer employees, or meeting specific size standards for their industry. Businesses needed to have been in operation by February 15, 2020.

PPP funds were intended for specific uses to support business continuity. Beyond payroll, permissible expenses included interest on mortgage obligations, rent, and utility costs. The program also expanded to cover certain operational expenditures, property damage costs due to public disturbances, supplier costs, and worker protection expenses like personal protective equipment.