Congress, in the latest COVID-19 relief bill, has established a new SBA PPP Loan Program and you may be eligible for additional money. The SBA recently released guidance for the new PPP loan, and we have the following details and analysis.
Second Round of PPP Money (PPP2)
The second round of PPP funding provides a forgivable loan for the hardest-hit small businesses and non-profits. To qualify for the loan, you must have 300 or fewer employees and be able to show a loss of 25% of gross receipts less refunds in any quarter during 2020 when compared to the same quarter in 2019. In addition, applicants must believe they have a need for the money.
- Remember that the requirements look at gross receipts less or collections from insurance companies and patients less refunds. The SBA is not focusing on net income (income after expenses). Our office can help you determine if your gross receipts less refunds were down 25% or more. Most of our clients were down by 25% or more in the second quarter of 2020 as compared to the second quarter of 2019. Please note that PPP1 money, EIDL money, HHS Stimulus money and other state grant money are NOT considered part of gross receipts.
- There are some new provisions associated with the PPP2 that are different than the PPP1 loan (which was available in the spring and summer of 2020). New provisions are:
- Revenue reduction of more than 25%, as mentioned above:
- If the PPP2 is greater than $150,000, supporting documentation of the revenue reduction will be required when applying for the loan.
- If the PPP2 is equal to or less than $150,000, supporting documentation of the revenue reduction can either be provided when applying for the loan or later, but it must be provided prior to applying for loan forgiveness.
- If you received PPP1 money, you must have already used the PPP money for eligible expenses. This is an important provision, but it is not applicable because we believe all of our clients have used all of the PPP1 money already.
- You do not have to have your PPP1 forgiveness application approved before being eligible to receive PPP2.
- Therefore, if you have not applied for PPP1 forgiveness yet or have applied but have not received forgiveness, you can still apply for PPP2.
- Other provisions of the PPP2 are very similar to PPP1, including:
- The costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment (PPE), to comply with COVID-19 federal health and safety guidelines.
- Supplies that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
- To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.
- PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, up to a maximum of $2,000,000. It is the same calculation that was done for PPP1 (since you can use 2019 data), meaning you may receive a similar amount for PPP2. Also, the bank should already have most of the information needed from the first loan submission.
Businesses Applying for Their First PPP Loan
If you did not apply for the first round of PPP loans, you may be able to apply during this round. The amount of funding available is similar to what was covered for PPP2. Please ask your banker for more information.
What to do now:
- Determine if you are eligible by calculating your revenue reduction, by quarter, comparing 2020 to 2019 and looking for one quarter that is more than 25% lower. For example, if your 2020 second quarter revenue was $60,000 and your second quarter 2019 revenue was $250,000, your calculation would be as follows: $250k – $60k = $190k, then take $190k and divide by $250k = .76, meaning your revenue reduction was 76%, and you are eligible.
- Determine if you need PPP2 money.
- If you are eligible and would like to participate, we recommend that you reach out to your banker to start the conversation, get on their radar, and begin the process. We have heard that some banks plan to be ready to receive applications by tomorrow with a majority opening up by next week.
- Documentation needed for PPP2 may be the same documentation provided to your bank for PPP1. Each bank will give you a list of what they require. It would be most efficient to use the same bank for your PPP2 application as you used for your PPP1 since they already have your application and documentation. We are hopeful if you use the same bank, they will not ask you to resubmit your back-up documentation, but if we helped you with this the first time and you need a copy of it, please let us know.
- This money, just like PPP1, is based on first come, first serve. If you are interested, you need to apply early.
- If you did not apply for the first round of PPP loans and meet the requirements for PPP2 (discussed above), please ask your banker about applying this round.