What is the Paycheck Protection Program (PPP)?
The Paycheck Protection Program (PPP) was a federal loan program established under the CARES Act in response to the COVID-19 pandemic. It provided forgivable loans to small businesses, self-employed individuals, and certain nonprofits to help them maintain their workforce and cover essential expenses during the economic crisis.
The program was designed to incentivize businesses to keep employees on payroll. If borrowers used the funds according to program rules, the entire loan amount could be forgiven, essentially converting the loan into a grant.
PPP Loan Calculation Formula
The maximum PPP loan amount is calculated using your average monthly payroll costs:
Multipliers by Business Type
- Standard Businesses: 2.5x average monthly payroll
- Hospitality (NAICS 72): 3.5x average monthly payroll (Second Draw only)
- Self-Employed: Based on gross income divided by 12, then multiplied by 2.5
Example Calculation
A business with $600,000 in annual payroll:
- Monthly Average: $600,000 / 12 = $50,000
- PPP Loan Amount: $50,000 x 2.5 = $125,000
What Counts as Payroll Costs?
Payroll costs eligible for PPP calculation include:
- Salary, wages, commissions, or similar compensation (capped at $100,000 per employee annually)
- Cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment for group health care benefits, including insurance premiums
- Payment of retirement benefits
- Payment of state or local tax assessed on employee compensation
Loan Forgiveness Requirements
To achieve full loan forgiveness, borrowers needed to meet these requirements:
- 60% Rule: At least 60% of funds must be used for payroll costs
- Covered Period: Funds must be spent within 8-24 weeks of disbursement
- Employee Retention: Maintain employee headcount and compensation levels
- Eligible Expenses: Remaining 40% can be used for rent, utilities, mortgage interest, and other approved costs
Loan Terms (If Not Forgiven)
- Interest Rate: 1% fixed
- Loan Term: 2 years (loans before June 5, 2020) or 5 years (loans after June 5, 2020)
- Deferral: No payments required until forgiveness determination
- Collateral: None required
- Personal Guarantee: None required
Frequently Asked Questions
No, the PPP program ended on May 31, 2021. New applications are no longer being accepted. This calculator is provided for educational purposes and to help understand how PPP loans were calculated.
For First Draw PPP loans, the maximum was $10 million. For Second Draw loans, the maximum was $2 million. Hospitality businesses could receive up to 3.5x their monthly payroll for Second Draw loans.
Forgiveness was based on using at least 60% of funds for payroll costs, maintaining employee headcount and wages, and spending funds within the covered period (8-24 weeks). Documentation was required to prove eligible expenses.
Any unforgiven portion becomes a loan with a 1% interest rate, payable over 2 or 5 years depending on when the loan was issued. No collateral or personal guarantee was required.