Five important PPP misconceptions NJ businesses must know about

(Editor’s note: this story was originally published on

By Patrick L. Ryan

Now that the deadline to apply for the Small Business Administration’s Paycheck Protection Program has been extended to May 31, there’s plenty of time for businesses to apply. Right?

Not quite.

Experts warn the program could run out of funding before the end of next month. With countless businesses still vulnerable, PPP loan relief remains in high demand. First Bank knows this well. After processing $190 million in PPP loans in 2020, we have received $110 million in PPP applications just three-plus months into 2021.

Still, despite helping New Jersey businesses of all sizes get through these challenging times, many companies remain skeptical about applying, even though it’s been a year since the program’s introduction. Myths, misconceptions, inaccuracies—you name it—linger, and they may be causing unnecessary hesitation.

Let’s dive into five common PPP misunderstandings and explain why, if you’re a business in need of cash, the time to act is now.

Only large businesses, not small ones, get approved. So, why bother?

This idea may have seemed true early on in the PPP application process —mostly because larger businesses were able to submit their applications faster—but it is certainly not the case today.

According to the U.S. Chamber of Commerce, most small businesses with fewer than 500 employees are eligible for a PPP loan. At First Bank, we’ve seen that the vast majority of companies that apply do end up qualifying, and they are getting forgivable loans approved and funded very quickly.

Also, consider this: Analysis from the SBA shows that of all the businesses that have received PPP backing, 75% have nine or fewer employees, proof that the program is doing specifically what it was designed to do: keep small businesses going until the economy improves.

Because I’m an independent contractor and have no employees, I don’t qualify.

When federal authorities say businesses with fewer than 500 employees are eligible, that includes businesses with the lowest number of all: One—you.

After the SBA released a revision to its formula to calculate maximum loan size for sole proprietors, that’s more obvious now. Instead of employee payroll expenses, the new calculation is based on lost income. For most independent contractors, this results in a significantly higher PPP loan amount.

But before this change, it probably seemed like independent contractors weren’t eligible. They were, except they qualified for a loan amount so small, most felt it wasn’t worth the effort. Now, sole proprietors potentially qualify for a larger loan, depending on the specifics of their business.

PPP loans are only for businesses about to go bankrupt. True?

While the federal government doesn’t want businesses that don’t need money to apply, the goal of the PPP is to help as many businesses as possible keep as many employees as possible on the payroll—and businesses affected by COVID-19 have a more challenging time meeting this objective.

If you can verify that your business has been hit hard by the ongoing pandemic, apply. You don’t have to wait for the threat of bankruptcy to approach.

I’ve received other types of SBA assistance, so PPP review results in an automatic no.

Even if you have applied for other forms of SBA financial assistance, you’re eligible for a PPP loan. One catch: The PPP loan must be used for a different purpose than the other SBA loans.

Depending on what other programs you’ve applied for at the time, it’s possible that the other SBA grants could be netted against the amount you qualify for in PPP loans. Again, that doesn’t mean you wouldn’t be eligible. It simply means that the other types of government funding you have received could impact how much you get in PPP aid.

PPP loans are automatically forgivable.

No, a little more work remains. You still need to file paperwork requesting forgiveness and provide supporting documentation, if required.

Now that the SBA has expanded its rules for what qualifies for forgiveness, the chances of you clearing your loan, which were already high, grew exponentially. Per the SBA, more of your business expenses are now eligible for forgiveness, which is a leading reason the vast majority of the loans we have given have been forgiven.

Do the above clarifications suggest that applying for and receiving a PPP loan is a must? No. Every business has its unique set of circumstances, yours included.

But if your business, regardless of size, is in need of an economic shot in the arm to save its most valuable resources—you and your staff—it’s certainly worth looking more into while there’s still money on the table.

Patrick L. Ryan is the president and CEO at Hamilton-based First Bank.