When Do You Need PPP Loan Insurance?

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Carl Niedbala

COO & Co-Founder

Over 4.4 million businesses accepted government aid through Payment Protection Program (PPP) loans to stay operational during the COVID-19 crisis. Now, the government will be conducting PPP audits for any business whose loan exceeded $2 million. The stipulations for receiving financial help were strict, making ongoing compliance a potentially massive challenge. Here’s what you need to know about PPP loan insurance and when this new insurance product can cut down on the risks you face. 

What Are the PPP Loan Details?

The PPP’s ultimate goal is to help businesses keep employees on the payroll. During the two rounds of PPP loan allocation, government relief programs dedicated nearly $510 billion to keep small companies from shuttering. However, businesses that accepted the financial support must meet ongoing criteria or “necessity certification,” which the US Small Business Administration (SBA) determines as:

  • Any small business concern that meets SBA’s size standards (either the industry based sized standard or the alternative size standard)
  • Sole proprietors, independent contractors, and self-employed persons
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500

That said, these loans are forgivable — but only if the business meets specific criteria. According to the SBA, PPP loan details are:

  • PPP loans have an interest rate of 1%.
  • Loans issued before June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred ten months after the end of the covered period for the borrower’s loan forgiveness (either eight weeks or 24 weeks).
  • No collateral or personal guarantees are required.
  • Neither the government nor lenders will charge small businesses any fees.

What Are PPP-Related Risks?

Some businesses returned the PPP loan because of the confusing rules and execution. Others did their best to comply with the messy regulations about when and how to use the funds. Nevertheless, the government is going to check up on plenty of companies that accepted the PPP loan. 

As mentioned, the government will be conducting audits for any business that’s loan was more than $2 million. Though, companies that fall under the $2 million mark don’t need to be as concerned. The government audits are trying to locate businesses that received a PPP loan but failed to comply with the stringent (and changing) eligibility requirements. 

No doubt, you’ve heard outrageous stories of small business owners buying high-end boats or taking extravagant trips with their PPP loans. While some of these tales might be true, the real risk lies with companies bending the rules slightly, whether purposely or accidentally. 

For example, the PPP rules changed from one round to the other. Some businesses are finding that they weren’t genuinely qualified to request PPP loan support. Perhaps some professionals miscalculated their financials, or they weren’t actually eligible for another reason entirely. 

No matter why, the government won’t grant loan forgiveness to all businesses. Instead, these companies will face a slew of fines and damages. This uncertainty is where Founder Shield steps in to ease some of the anxiety surrounding the perplexing PPP loans.

What Is PPP Loan Insurance? 

Although PPP loan insurance is a novel product, it might become a timely help during an incredibly challenging time for many companies. For starters, it’s coverage for businesses the government determines wasn’t eligible for the PPP loan. Most companies in this predicament will have to repay the loan in its entirety, which might result in business closures — the very thing we are trying to avoid.  

However, PPP loan insurance kicks in to help businesses who feel the government’s assessment of their eligibility, and subsequent loan forgiveness isn’t possible. This policy covers related losses, such as defense costs, fines, penalties, and financial damages. 

Who Needs PPP Loan Insurance?

Suppose your business is up for an audit, and the government is hacking away at your initial eligibility. In that case, it might be time to consider PPP loan insurance to guard against the associated risks. Some details regarding coverage are as follows:

  • Price: the annual cost for PPP insurance will be 4% of your loan amount. 
  • Deductible: the minimum deductible will be $200,000.
  • Coverage: the policy only kicks in if the government determines you weren’t eligible for the loan, rendering it unforgivable. 

Keep in mind that it’s not effortless to get a quote for this product. It’s a tall order that will call on the expertise of your finance team — but we’re here to help. For a deeper dive into PPP loan insurance, please know that we can help guide you through this trying time. 

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 

Want to know more about PPP loan insurance? Talk to us! You can contact us at ​info@foundershield.com​ or create an account ​here​ to get started on a quote. 

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