PPP Small Business Window
Recently, the Biden administration announced a 14-day window for small businesses to apply for a forgivable PPP loan. Fortunately for us, theClubhou.se has members that are experts in just about any topic. The following is a guest blog from Becky Dearden at SME CPA’s to help you figure out if your business is eligible and how to apply.
Guest Blog by Becky Dearden
SME CPA’s
In 2020, the federal government’s Paycheck Protection Program (PPP) provided forgivable loans to more than 5 million U.S. businesses as a way to help them make it through the coronavirus crisis. In 2021, many of those same businesses now have the opportunity to apply for a forgivable second-draw PPP Loan, which can provide more short-term assistance.
On February 22, 2021 the new administration announced that they will only accept applications for the second-draw PPP loans from businesses and nonprofits with fewer than 20 employees for two weeks starting February 24th. After the two-weeks ends, all other companies that have not already applied for first- and second-draw PPP loans will be able to apply until March 31, 2021, or until the money allocated for the program runs out.
The terms and restrictions for second-draw PPP loans are not the same as for first-time PPP loans, so businesses should be aware of the changes before applying. Here are some details that companies need to know about second-draw PPP loans.
What businesses are eligible for second-draw PPP
The second-draw PPP’s purpose is to offer financial assistance to businesses that were hit especially hard by COVID-19 disruptions. Ultimately, this means the second-draw loans are much more targeted. To qualify, companies must meet the following criteria:
The business must have previously received a PPP loan and used the full amount only for authorized uses.
The business must have fewer than 300 employees.
The business will need to show it had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. (The SBA defines “gross receipts” as all revenue “including from the sales of products or services, interest, dividends, rent, royalties, fees, or commissions.”)
Terms of the second PPP loan
The maximum loan size for a second-draw PPP loan is $2 million, versus $10 million for a first-time PPP loan. Like other PPP loans, the interest rate for all second-draw PPP loans is set at 1%, and no personal guarantee or collateral is required. The “covered period” for the loan is between 8 and 24 weeks, and the period generally begins the day the loan funds are disbursed.
Both the government and lenders involved with PPP are not allowed to charge any fees for processing these loans.
Note: Businesses that qualify for second-draw PPP loans should first contact whatever bank, credit union or fintech company they used to secure their first PPP loan.
Colson Harrin sharing his ecommerce work with Becky Dearden, and Paul Wade, CPA
Calculating the size of your second-draw PPP loan
For most businesses, the maximum loan amount businesses can apply for is 2.5 times their average monthly 2019 or 2020 payroll costs, up to $2 million. Borrowers in the Accommodation and Food Services sector (most bars and restaurants would fall under this designation) can apply for 3.5 times their average monthly 2019 or 2020 payroll costs, up to $2 million. SME CPAs strongly recommends you work with an accountant or financial advisor when calculating your loan amount to ensure it is correct.
What funds can be used for
Businesses must spend at least 60% of their loan amount on payroll costs during the “covered period” to get a second-draw PPP loan forgiven. The other 40% can be spent on the following non-payroll expenses:
Qualifying rent or mortgage interest payments
Utility costs
Operations expenses: cloud computing services, business software, human resources and related expenses
Supplier costs: payments that go to suppliers who provide essential goods
Worker protection expenses: expenses to keep employees safer during COVID-19, including personal protective equipment (PPE), drive-thru windows, sneeze guards and outside dining enclosures
Property damage costs: costs related to civil unrest that occurred in 2020 that were not covered by insurance
How to apply for second-draw PPP loans
Applications opened on January 13, 2021, and will close on March 31, 2021. Businesses that qualify for second-draw PPP loans should first contact whatever bank, or credit union they used to secure their first PPP loan. If the same lender offers second-round PPP loans, you will likely want to apply directly with them. Once the lender has processed the application, they will then send it to the SBA for approval.
Obtaining loan forgiveness
Just like the first round, second-draw PPP loans are entirely forgivable if the funds are used for approved expenses during the “covered period” (8-and-24-week) and fund disbursement is properly documented. To obtain forgiveness, employee headcount and compensation levels must also be maintained during the covered period. Borrowers have 10 months after the last day of the covered period to apply for forgiveness. If the borrow does not do that, they will be required to start making payments on the loan.