22 Apr, 2022

A Full Breakdown Of What A Ppp Loan Is

A Full Breakdown of What a PPP Loan is
Written by: - Phil Baker

Are you considering a PPP loan and want to know more about it? Maybe you have heard people discussing PPP loans but aren’t sure what they are? Or are you curious and want more information? Whatever brought you here today, we have the answers for you!

When it comes to loans, we know how confusing it can be to find out what they are, how you can apply, and who qualifies. You can find yourself searching and searching, but never quite getting the answers that you need. 

And that’s where we come in. today, we are here with all the answers that you need. Just keep reading to find out what a PPP loan is and everything you need to know about it!

Also read: How To Budget Wisely With The Assistance Of Budget Apps

person with paper

What Is A PPP Loan?

A PPP loan, also known as a Paycheck Protection Loan, is an unsecured personal loan that allows you to borrow money for up to 12 months.

It’s designed to help small businesses and self-employed individuals who are experiencing financial difficulties due to the coronavirus pandemic. 

In the USA, it is called a Small Business Administration (SBA) loan. In the UK, it is called a Self-Funded Personal Loan from your bank or building society. In Australia, it is called a Working Capital Loan.

The term 'Paycheck Protection' was coined by the SBA to describe this type of loan.

The SBA defines a paycheck protection loan as:

"A short-term, interest-free loan made available to eligible employers to provide immediate cash flow relief during periods when they cannot pay their employees."

So, let's take a look at the PPP loan in more detail.

Also read: 8 Personal Finance Apps For Your Better Future

How Can I Get a PPP Loan?

There are two ways to get a PPP loan. You can apply online through the SBA website, or you can go into any branch of your bank and ask them to make one on your behalf.

You will need to show proof of income - either your last 2 payslips or 2 years' worth of tax returns.

You will have to prove that you are unable to cover your monthly payments with your current salary. This could be because you've been laid off, or if you're self-employed, it could be because you haven't received any orders for some time.

If you don't qualify for a PPP loan, then you may still be able to get a business credit card. These cards offer lower rates than standard credit cards and allow you to use the funds towards anything you wish.

The downside is that the APR on these cards tends to be higher than normal credit cards.

Also read:How To Organize Your Financial Records In 5 Easy Steps

What Are the Benefits?

The main benefit of getting a PPP loan is that you won't have to worry about making repayments until your next payday.

This means that you'll always have access to the funds you need. It also means that you won't have any outstanding debts, which is great news if you're struggling with debt.

Another major benefit is that you won't be charged extra fees. There are no application charges, no setup costs, and no ongoing maintenance fees.

Finally, there are no missed payment penalties. If you miss a payment, you won't be penalized.

If you have a business with more than 50 employees, then you may be eligible for additional funding through the SBA's Payroll Protection Program.

Also read: Self-Employed Taxes For Dummies

man looking at paper

Why Should I Apply?

There are many reasons why people choose to apply for a PPP loan. Some common ones include:

  • Covering payroll costs

  • Covering rent/mortgage payments

  • Covering utility bills

  • Covering essential purchases like food, medicine, toiletries, cleaning products, etc.

  • Covering employee holiday pay

  • Covering childcare costs

  • Protecting against future income losses


Who Can Apply For a PPP Loan?

Anyone who has been laid off or furloughed from work because of the coronavirus outbreak can apply. You don't need to own a company or run a business. You just need to be earning at least $50,000 per year.

In addition to this, anyone who is an independent contractor, freelancer, part-time worker, or full-time student can apply.

Also read: Internal Revenue Code (Irc) - Section 162


Are There Any Downsides?

Of course! Here are the downsides to applying for a PPP loan:

  • It's only good for 6 months. After that, you'll have to start paying back the money you borrowed.

  • You'll be required to pay back the entire amount within 60 days of receiving the loan.

  • Repayment terms tend to be variable. They can range anywhere between 3 to 12 months.

  • Your interest rate will be fixed at 8% for the first six months, but after that, you'll be subject to a variable rate.

  • You'll have to provide all of your personal information when you apply. This includes things such as your name, address, date of birth, social security number, bank account details, etc.


How Much Will I Be Charged?

There are two types of loans available. One type is called the "Paycheck Protection Plan" (PPP) loan. The other is known as a "Small Business Administration" (SBA) loan. Both types of loans are offered by banks, credit unions, and online lenders.

The cost of each loan depends on how much you borrow, what kind of loan it is and where you apply.

However, most lenders charge around 2% in processing fees. In addition to this, they will usually charge around 1% in annual interest.


Can I Borrow More Than My Salary?

Unfortunately not. In the USA, you can only borrow up to 100% of your annual earnings.

This means that if you earn $100,000 per year, you can only borrow $10,000.

However, if you're based overseas, it doesn't matter how much you earn. You can borrow whatever you want.


Is There Anything Else to Know?

Yes! There are a few things to keep in mind before applying for a PPP loan:

Your loan must be repaid within 12 months. If you fail to meet this deadline, you'll lose the right to claim back the loan.

Repayment terms vary depending on where you live. For example, if you're based in the USA, the repayment period is 60 days. However, if you're based outside the US, the repayment period is 90 days.

Repayment is calculated using the average monthly wage rate in the area you reside.

Your lender will contact you once the loan is approved. They will ask you to confirm the details of your loan.

Once you've confirmed them, they will send you a letter confirming the amount of the loan and how much you'll need to repay each month.

They will also give you an estimate of what your repayments will look like throughout the loan period.

They will then set up an automatic payment plan that you can access online.

girl with money

Final Thoughts

A PPP loan isn't right for everyone. But if you do qualify, then it could help keep your business afloat during uncertain times.

If you decide to take out one, make sure you read through any forms carefully so you know exactly what you're signing up for.

And remember, there are no guarantees with any financial product or service. So always seek professional advice from someone who knows what they're doing.

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