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PPP Loans: Ultimate Beginners Guide

In this article

  1. What is a PPP loan?
  2. PPP loan eligibility
  3. What happens if I incorrectly apply for a PPP loan?
  4. How to apply for a PPP loan
  5. The clock is ticking for PPP loan relief
  6. Chime and PPP loans: FAQ

The Paycheck Protection Program (PPP) is designed to help small businesses keep workers on the job. It's important to know who's eligible--and who's not.

Rebecca Lake • November 20, 2023

TL;DR: Small businesses – including 1099s and sole proprietors – are only eligible for PPP loans if they’ve been in existence prior to February 15, 2020. Acceptance of deposits are subject to account agreements.

The Paycheck Protection Program (PPP) is designed to help small business owners keep their doors open and their employees on the job during the pandemic. But there’s plenty of confusion about how the program works and who qualifies. 

Wondering if your business could be eligible for a PPP loan? 

Here’s an in-depth look at how the Paycheck Protection Program works and how to know if you qualify. 

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What is a PPP loan?

The Paycheck Protection Program is a loan program that’s backed by the Small Business Administration (SBA). This loan program has one purpose: helping small business owners keep their workers on the job during the coronavirus pandemic. 

Currently, loan funding is available through May 31, 2021. There are two types of loans you can get:

  • First Draw PPP loan
  • Second Draw PPP loan

 

First Draw PPP loans

If you’ve never received a loan through the Paycheck Protection Program you could be eligible for a First Draw PPP loan. The SBA allows you to use this money to:

  • Fund payroll costs
  • Pay mortgage interest
  • Pay rent
  • Cover utilities
  • Pay pay worker protection costs related to COVID-19
  • Cover uninsured property damage resulting from looting or vandalism that occurred in 2020
  • Pay certain supplier costs and operational expenses

Here are some of the key details on how this loan works:

  • PPP loans have an interest rate of 1%
  • Loans issued after June 5, 2020, have a five-year maturity term
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender
  • If you don’t apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (between 8 and 24 weeks)
  • You don’t need collateral or a personal guarantee to apply
  • There are no fees with this PPP loan

In terms of how much you can borrow with a First Draw PPP loan, the amount depends on the number of employees you have and the size of your payroll but the maximum loan is up to $10 million. According to the SBA, the average PPP loan is $107,000 and 86.5% of all loans offered through the program are for less than $150,000. 

 

Second Draw PPP loans

Second Draw PPP loans are for business owners who have already received a PPP loan previously. Second Draw loans can be used for the same purposes as a First Draw loan and the same 1% interest rate applies. 

The maximum amount you can borrow with a Second Draw PPP loan is 2.5 times the average monthly 2019 or 2020 payroll costs for your business, up to a $2 million cap. Accommodation and food service businesses can use 3.5 times the monthly average for 2019 or 2020 payroll costs to determine their maximum loan amount, up to the $2 million cap. 

 

Do PPP loans have to be repaid?

Technically, yes. But you can apply for loan forgiveness which would let you off the hook for repayment. 

You’ll need to apply for forgiveness through your lender. Here’s who can be considered for PPP loan forgiveness:

First Draw PPP loans: Borrowers may qualify for full loan forgiveness if, during the 8- to 24-week period following loan disbursement:

  • Employee and compensation levels are maintained
  • Loan funds are used for payroll and other eligible expenses
  • At least 60% of the money is used to cover payroll

Second Draw PPP loans: Borrowers may qualify for full loan forgiveness if, during the 8- to 24-week period following loan disbursement:

  • Employee and compensation levels are maintained following the same requirements for First Draw loans
  • Loan funds are spent on payroll and other approved costs
  • At least 60% of the money goes toward payroll

You can apply for PPP loan forgiveness any time during the loan term. But if you don’t apply during the initial 10-month period in which you’re allowed to defer payments, you’ll need to start paying on the loan even if you plan to seek forgiveness. 

PPP loan eligibility

The SBA has some guidelines on who can apply for a PPP loan. In terms of who may qualify for a First Draw PPP loan, the list includes:

  • Sole proprietors, independent contractors, and self-employed persons
  • Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location

For Second Draw PPP loans, you may qualify if:

  • You previously received a First Draw PPP loan and will or have used the full amount only for authorized purposes
  • Your business has no more than 300 employees
  • You can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

Your business has to have been affected by the COVID-19 pandemic in some way. And you must have been operational before February 15, 2020. 

 

Who is NOT eligible for a PPP loan?

There are certain businesses that cannot apply for a PPP loan. These same businesses are also ineligible for other types of SBA-backed loans. 

Generally, you’re excluded from PPP loan eligibility if any of the following are true:

  • Your business has defaulted on federal loans
  • Your business is delinquent on federal taxes
  • Your business is located in a foreign country or is owned by undocumented aliens
  • You run a pyramid scheme
  • Your business limits membership to certain people
  • You engage in discriminatory hiring practices
  • Your business is government-owned
  • You run a passive business (i.e. leasing land for cellphone towers, owning real estate, etc.)
  • Your business is engaged in lending or similar financial activities
  • Your business is centered around illegal activity
  • Your business primarily promotes religion
  • You run a business that derives most of its revenue from products or live performances of a prurient sexual nature
  • One or more of your business associates has a poor character
  • Your business is primarily engaged in political or lobbying activities
  • You run a speculative business (i.e. investing, engaging in research and development, etc.)

The SBA has said it will make exceptions for certain types of businesses that would otherwise be ineligible. But it’s best to clarify with the SBA first whether your business type will be allowed because applying for a PPP loan when you don’t qualify can lead to serious consequences. 

What happens if I incorrectly apply for a PPP loan?

It’s important to understand if you’re eligible for a PPP loan before applying to make sure you qualify. If you apply without verifying your eligibility your loan application can be denied. Applying incorrectly, meaning including errors on your application, can also lead to a denial of your loan.

The SBA could deny your application if it determines that you knowingly submitted an application when you were ineligible for a loan. In the worst-case scenario, you could be charged with PPP loan fraud if you receive funding through the program when you’re ineligible. 

Things that could lead to a felony fraud charge include:

  • Lying on the PPP loan application
  • Falsifying your income or business details
  • Submitting forged documents

The SBA does make a distinction between borrower error and fraud so if you accidentally enter a wrong digit for your income, that’s not necessarily going to lead to a criminal charge. But if you apply for PPP thinking you qualify just because you run a business you could unknowingly be attracting charges of bank fraud, wire fraud or mail fraud in the process. 

How to apply for a PPP loan

If you think you qualify for a PPP loan, the first step is finding a lender. You can use the SBA’s lender lookup tool to find an approved lender near you. Or you can use the SBA’s Lender Match service to get connected with a PPP loan lender. It can take a couple of business days to get matched this way. 

Once you choose a lender, the next step is applying for a PPP loan. This means filling out a loan application and providing any supporting documentation the lender requests, which may include: 

  • Government-issued ID for all owners who have a 20%+ share in the business
  • Proof that you were in business on or before February 15, 2020
  • Copies of applicable tax forms, including a full business tax return
  • Documentation of payroll costs, which may include W2s, IRS Form 944 or a third-party payroll processing report
  • Bank statements

You’ll also need to provide a bank account number and routing number for the account that you’d like your funds deposited into. If you’re applying for a Second Draw PPP loan, you’ll need to fill out a different application

Once you submit your application and supporting documents, the lender will review them to determine if you’re eligible and what amount of loan funding you qualify for. You’ll have a chance to review the loan terms before signing any final paperwork to confirm that you want to move ahead with borrowing. SBA rules require lenders to disburse PPP loan funds no later than 10 calendar days of approving an application. 

The clock is ticking for PPP loan relief

If you think your small business could benefit, it’s important to get your application in sooner, rather than later since funding for the current round is only approved through May 31, 2021.  Just remember: receiving funding when you’re not eligible can lead to felony fraud charge – so make sure to check the rules before applying as your business.

Chime and PPP loans: FAQ

What is the Paycheck Protection Program (PPP)?

In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act established the Paycheck Protection Program (PPP) to provide economic relief to small businesses nationwide adversely impacted by the COVID-19. The PPP is administered by the Small Business Administration (SBA) with support from the Department of the Treasury. The PPP provides significant financial incentives for small businesses to hold on to current employees and bring back workers who had been laid off or furloughed, even before their business was fully back up to speed.

Designed to provide quick access to loans from the SBA for companies with 500 or fewer employees, the PPP’s intention was to help with payroll and operating costs during short-term business disruption caused by the COVID-19 pandemic. The PPP loan application period, which had been extended from July to August and most recently to December and then March 31, 2021, has now been extended to May 31, 2021.

Eligible businesses are eligible for up to $10 million in loans, which can be used for covered payroll and other expenses, such as insurance premiums, mortgage interest, rent, or utilities. Loan payments are also deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders charge small businesses lending fees.

Forgiveness is based on the employer maintaining or quickly rehiring employees and

maintaining salary levels. To qualify, borrowers must spend the loan proceeds on payroll costs or other eligible expenses, with at least 60% going towards payroll. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

You should check the Paycheck Protection Program site and work with a qualified lender if you think you might be eligible for, and want a PPP loan. 

Who is eligible for a Paycheck Protection Program (PPP) loan?

To receive the loan, the lender must confirm that the borrower was in operation as of Feb. 15, 2020, had employees, and determine the maximum amount of the loan.

The following entities affected by COVID-19 may be eligible:

  • Sole proprietors, independent contractors, and self-employed persons
  • Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
  • 500 employees, or
  • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location

You should check the Paycheck Protection Program site and work with a qualified lender if you think you might be eligible for, and want a PPP loan. 

Will my Paycheck Protection Program (PPP) loan get deposited into my Chime account?

You may be able to receive some PPP deposits to your Chime account from the following lenders through Womply:

  • Fountainhead 
  • Harvest Small Business Finance 
  • DreamSpring
  • SEDCO
  • Benworth

All deposits are subject to review, and we cannot guarantee yours will be accepted. We’re committed to ensuring that we find the right solutions for our members, and are working with partners to continue to accept PPP deposits administered by the Small Business Administration that are in alignment with your Deposit Account Agreement.

What is Chime doing to fight fraud?

Your account safety is important to us. We are committed to combating fraud and reporting suspicious activity regarding Paycheck Protection Program (PPP) deposits to the Small Business Administration and US Department of Justice .  These agencies are pursuing investigations of those who file fraudulent PPP loan applications. Funds are allocated for individuals and small businesses affected adversely by pandemic-related economic loss. Chime is aware that the PPP has experienced severe fraud abuse by applicants. 

Protect yourself from potential fraud schemes related to economic stimulus programs by being aware of predatory actors looking to exploit vulnerabilities. You can find more information through the SBA – https://www.sba.gov/document/report-sba-programs-scams-fraud-alerts 

It is important to be truthful about your work status when applying for a PPP loan. Providing false information on a PPP application is a federal offense and could result in felony charges and jail time. The PPP program requires your business, sole proprietorship or independent contractor work was in existence and earning income prior to 2/15/20. Applicants must certify this fact under penalty of perjury in the loan application.

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Qualifying members will be allowed to overdraw their Chime Checking Account and/or Secured Deposit Account (associated with your Chime Credit Builder credit card) up to $20, but may be later eligible for a higher limit of up to $200 or more based on Chime account history, direct deposit frequency and amount, spending activity and other risk-based factors. The SpotMe limit will be displayed within the Chime mobile app and is subject to change at any time, at Chime’s sole discretion. Although Chime does not charge any overdraft fees for SpotMe, there may be out-of-network or third-party fees associated with ATM transactions. SpotMe Debit Terms and Conditions and SpotMe on Credit Terms and Conditions.

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