PPP in a nutshell

Popular program provides direct economic assistance to small businesses.

August 31, 2020

On March 27, 2020, the president signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, a $2 trillion economic relief package to address public health and the economic impacts of coronavirus (COVID-19).

The CARES Act, which is the third emergency relief aid package from Congress during the pandemic, provides fast and direct economic assistance for American workers, families, and small businesses, and preserves jobs for American industries.


  • SBA’s Paycheck Protection Program (PPP) offers loans to allow small businesses to pay staff salaries and other expenses.
  • Despite a rocky start, the PPP proved so popular that its initial $349 billion was exhausted just two weeks after launch.
  • Board focus: Further assistance to small businesses may be forthcoming.

What is the PPP?

The CARES Act amends Section 7(a) of the Small Business Act to add a temporary product to authorize existing Small Business Administration (SBA)-certified lenders, federally insured credit unions, and others who are participating in the Paycheck Protection Program (PPP) to offer loans that provide small businesses with funds to continue to pay employees, mortgage interest, rent, and utilities.

The PPP authorized up to $349 billion and is implemented by the SBA with support from the U.S. Treasury Department. PPP loans are available to small businesses, certain nonprofit organizations, veteran’s organizations, or tribal business concerns with fewer than 500 employees or the North American Industry Classification System size standard for that industry (whichever is greater).

PPP loans offer small business borrowers several attractive features, including a 1% annualized interest rate, five-year maturity (up from two years due to a legislative amendment), and a deferral period on principal and interest until the date the PPP lender receives the applicable forgiven amount from the SBA. The key benefit, though, is that PPP loans can be fully forgivable if businesses use the proceeds for permitted purposes.

SBA guidance

The SBA issued its first interim final rule April 2 to provide guidance to small businesses about their eligibility for PPP loans, loan terms and maximum loan amounts, required steps and forms, and other factors to consider to determine whether the PPP loan would be the right decision. This included notice about the last day to apply for and receive a loan.

This interim final rule also explained how lenders can make PPP loans, required forms for the lender to provide, and the lender’s obligations. The aim was to allow for immediate implementation of PPP to get the loan proceeds to eligible small businesses so they could keep their employees on the payroll.

On April 3, the PPP began accepting loan applications. Lenders had minimal guidance beyond the application forms to authorize the lender to make PPP loans, the borrower application form with certifications as required by the CARES Act, and the lender’s application PPP loan guaranty form.

In general, the SBA told lenders they could rely on borrower certifications and documentation, and fund the loans without SBA authorization. The mantra to lenders was to get an eligible borrower’s application into the SBA system to obtain the SBA loan number, which confirmed the funds had been set aside for that borrower.

The agency advised borrowers and lenders that additional guidance would be forthcoming. Authorized lenders were basically taking a leap of faith that the SBA would address their outstanding questions and concerns in time.

Despite what many would agree was a rocky start, the PPP proved so popular that the program’s initial $349 billion was exhausted on April 16, just two weeks after launch.

Through April 16, the agency guaranteed 1,661,367 PPP loans, 1.2 million of which (74%) were for $150,000 or less. Only 4% of issued loans were for $1 million or more, comprising 44.5% of all PPP funds.

The maximum loan amount was $10 million, and the overall average loan size was $206,000.

NEXT: Additional PPP relief

Additional PPP relief

On April 24, the president signed into law the Paycheck Protection Program and Health Care Enhancement Act (PPP Act) to afford further COVID-19 relief. The PPP Act represents the fourth major emergency relief package to address COVID-19.

This act provided $484 billion in additional funding to replenish key programs under the CARES Act, including the PPP and small business disaster loans and grants. It also provided funding for hospitals and health-care providers, and expanded testing for COVID-19.

The PPP Act provided an additional $310 billion in PPP loans to help small businesses keep their employees on the payroll. This included $30 billion in guaranteed loans to credit unions, community lenders, and banks with less than $10 billion in assets, and $30 billion in guaranteed loans to lenders with $10 billion to $50 billion in assets.

This set aside $60 billion to ensure more PPP funds went to “mom and pop” shops, minority-owned businesses, and underserved communities rather than large corporations.

Because the PPP Act replenished funds for the PPP, the SBA resumed accepting PPP loan applications and disbursing PPP funds on April 27. Within five days, PPP loan approvals reached an additional $175.7 billion before slowing considerably.

Through May 30, the SBA guaranteed 4,475,599 PPP loans for $510.2 billion, including cancellations and funding. The overall average loan size was $114,000.

This meant that more than $140 billion remained unspent a month later. This slowdown may have been due in part to uncertainty as to how funds could be spent to be forgiven, concerns about unclear repayment terms, and duplicate applications submitted to multiple lenders during the initial mad dash for funds.

The slowdown in borrowing resulted in additional legislative changes to loosen PPP rules. On June 5, the president signed into law the Paycheck Protection Program Flexibility Act (PPP Flexibility Act) to provide small businesses with greater flexibility and more time to use their PPP funds.

‘The mantra to lenders was to get an eligible borrower’s application into the SBA system.’

Loan forgiveness

The PPP Flexibility Act extended the period borrowers can apply for loan forgiveness from the original eight weeks to 24 weeks after the date of disbursement to the PPP borrower, but not later than Dec. 31, 2020. These changes increase the likelihood that a large percentage of loans will be forgiven.

The act also expanded the covered period a borrower must spend PPP loan proceeds to be eligible for forgiveness from eight weeks to the earlier of 24 weeks after loan origination or Dec. 31, 2020. This allows PPP borrowers a longer period to spend PPP loan proceeds and have them count toward forgivable costs.

The maturity for forgiveness of any portion of a remaining balance on a PPP loan disbursed on or after the date of enactment of the PPP Flexibility Act was extended from a two-year maturity date to a minimum of five years. For existing PPP loans, borrowers and lenders can mutually agree to a loan maturity date that is longer than the two years stated in the SBA regulations.

The PPP Flexibility Act reduced the amount a PPP borrower must spend on payroll costs to 60% from 75%, thereby allowing 40% of the PPP loan proceeds to be spent on non-payroll costs including covered mortgage interest, rent, or utilities. This means PPP borrowers can use more PPP funds on permitted expenses other than payroll costs.

The CARES Act requires certain reductions in a borrower’s loan forgiveness amount for reductions in full-time equivalent (FTE) employees or in employee salary and wages during the covered period. The CARES Act included a safe harbor if the PPP borrower restored employment or salary and wages prior to June 30. The PPP Flexibility Act extended this safe harbor date from June 30 to Dec. 31, 2020. If the FTE employees or the salary and wages are restored to Feb. 15 levels any time before Dec. 31, 2020, no reduction in forgiveness will be required.

NEXT: Safe harbor

Safe harbor

In addition, the PPP Flexibility Act added a new safe harbor to provide that a PPP borrower will not have a reduction in forgiveness amount due to a cutback in FTE employee count if the PPP borrower can document in good faith an inability to:

  • Rehire the same or similar employees that were in place as of Feb. 15.
  • Hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020.
  • Return to the same level of business activity before Feb. 15 due to COVID-related social distancing, sanitation, and other safety requirements or guidance from certain government agencies.

This basically means that if on Dec. 31, 2020, shops, restaurants, and gyms (for example) cannot fully open due to government restrictions, any loss in FTE employees resulting from such restrictions should not be considered in calculating a required reduction in the loan forgiveness amount.

Finally, the PPP Flexibility Act extended the deferral period on principal and interest payments from six months after the loan funding date to the time that SBA remits the forgiveness amount to the lender.

On June 30, the last day to apply for a PPP loan, the SBA had approved more than 4.8 million PPP loans for $520.6 billion, and had issued 22 interim final rules to provide borrowers and lenders with needed guidance.

This included more than 700 credit unions of less than $1 billion in assets that made more than 60,000 loans totaling almost $3 billion. Just a few hours before the application window was scheduled to close, the Senate passed by unanimous consent an extension of the PPP to August 8. On July 1, the House passed the bill, which means all that is needed now is the president’s signature for the extension to take effect.

On July 4, the president signed legislation to extend the deadline for eligible businesses to apply for loans under the PPP to Aug. 8, 2020.

Congress continues to work on a fifth coronavirus relief package that will likely include additional PPP funding and other PPP-related provisions.

PATRICIA O'CONNELL is CUNA’s lead compliance counsel. Contact CUNA’s compliance team at

This article appeared in the fall issue of Credit Union Magazine. Interested in subscribing? Visit