Common PPP Misconceptions

By Owen Yin on May 21, 2020

The Paycheck Protection Program is a forgivable loan meant to help small businesses who are struggling to get through the COVID-19 pandemic.

Unfortunately, it has brought more confusion than relief for many entrepreneurs. Here are some of the most common misconceptions about the PPP, and some truth to clear them up.

The PPP is only for the bigger businesses, not small ones like mine

Almost every small business is eligible for the PPP—it has one of the broadest eligibility requirements of any federal small business loan program. Independent contractors, sole proprietors, and self-employed individuals all qualify for the PPP, no matter how small they are.

We encourage all eligible businesses to apply for the PPP if they have been financially impacted by COVID-19.

In the beginning of the program, we saw reports of banks prioritizing large loans. As a response, in the second round of PPP funding, the government took steps to ensure more small businesses were able to apply, such as earmarking some of the funds for small credit unions and community banks.

If you encounter delays with your current bank, we recommend starting applications with a community bank or a fintech lender such as BlueVine. It’s okay to have more than one application going.

I can only get the PPP if I have employees

S corps and C corps that have no employees on payroll are indeed not eligible for the PPP.

However, self-employed individuals, such as independent contractors and sole proprietors, can apply for the PPP, even if they don’t have anyone else on payroll. If this sounds like you, you’ll be able to claim a portion of your reported net income on your 2019 Schedule C as replacement income. This is known as the “owner compensation replacement”.

Further reading: PPP Forgiveness for the Self-Employed

I can use the PPP funds like a low-interest loan

The PPP was designed to ensure paychecks would not be impacted by the COVID-19 economic slowdown. If you have employees, your PPP loan is to be used to maintain their pay, and rehire anyone who had to be laid off. It’s not meant to be used for working capital —the EIDL program is a better fit for that.

When you received the PPP loan, you agreed to only spend the funds on certain things. In particular, in order to receive the PPP loan you must have made the following certification:

*The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud. *

If you have excess funds, or believe you received more funds than you were qualified for, it is best to avoid spending it.

If you’re self-employed and don’t have employees, roughly 73% of your PPP loan gets automatically forgiven without needing to be spent on employee payroll (once you apply for forgiveness), but the remaining funds need to be spent on utilities, rent, and mortgage interest.

The SBA will change the rules so nobody will be able to get the loan forgiven

With updated guidance being continuously released and revised by the SBA and Treasury, it’s understandable that small business owners may be hesitant to take on a loan and keep a liability on their balance sheet.

Ultimately, it’s important to the government that small businesses are able to survive through the pandemic. Small businesses generate about half of America’s gross domestic product, employing millions of Americans.

In recent weeks, government officials have been working on several bipartisan initiatives to provide greater flexibility with the PPP program. We expect the forgiveness process to be simplified and streamlined as time goes on, not made more restrictive.

If you are uncomfortable with loans, there are other funding resources available to you.

I can get the PPP and claim Pandemic Unemployment Assistance funds

Unfortunately, you cannot get a PPP loan and get unemployment benefits at the same time. The PPP, PUA, and unemployment benefits are all considered sources of income. Although it can be tempting to claim funds from all the relief programs, it is not allowed and you could face consequences.

For self-employed individuals who have received the PPP and are claiming their eight-weeks’ worth of 2019 net profit as Owner Compensation Replacement (OCR), you are considered to be fully covered for the eight-week coverage period and you would not qualify for additional unemployment benefits or PUA.

If you’re already registered with your state’s unemployment benefit department, you will need to report your PPP funding as income. Check with your state’s labor department for specific details.

After the eight-week coverage period ends, you are able to begin collecting full unemployment benefits again.

Further reading: The PPP vs Unemployment Benefits (How to Choose)

I can only apply for the PPP if my business is about to go bankrupt

If you are able to confirm in good faith that the current economic situation has impacted your business, you can apply for funding. Don’t wait until potential bankruptcy to go through the application process, especially as PPP funds are quickly running out.

You may have heard that many larger businesses returned their PPP funding because the Treasury determined that they had sufficient access to other sources of funding. The Treasury has acknowledged that small businesses obtaining PPP loans smaller than $2 million are less likely to have these sources of funding. These small businesses will be deemed to have correctly certified that the PPP loan was necessary to maintain operation of the business.

The bottom line: if you’re a small business owner and your business is struggling, you should apply for the PPP. As long as you follow the rules for forgiveness, you’ll be able to get 100% of your loan forgiven. But if you’re still not comfortable with the idea, you can check out these alternatives to the PPP.

More PPP resources


This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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