The Paycheck Protection Program was an important part of the CARES Act passed by Congress last March. While there are stories of unfairness and even outright fraud involving the program, it helped many small businesses stay afloat during the first wave of the pandemic. But as the virus wore on that initial round of PPP money needed to be refreshed. Congress did that prior to year-end and is poised to do so again in the next week or so as part of the broader stimulus legislation being worked on. And fortunately there will be added emphasis on getting money to small businesses more easily.
The new round of PPP is much like the last but with some important differences. This time to qualify you’ll need to show (or perhaps simply attest, verify that with your lender or tax advisor) that your business suffered a 25% decline in revenue during any quarter in 2020 over the same quarter in 2019. If so, and if you plan to spend at least 60% of the money on payroll and the rest on a host of other eligible business expenses, you should be able to have the loan completely forgiven. And yes, this also applies even if you participated in a prior round of the PPP so long as you suffered enough of a revenue decline. Below are sections of an article from an industry publication, Financial Advisor, addressing this at a high level so you can see if you’re likely to qualify.
But, as they say, the devil is in the details. Work with your current business bank to do the application and they should be able to walk you through it successfully. These banks have had lots of practice since last March, especially with small businesses that are typically looking for relatively small loan amounts.
And as I mentioned a moment ago, small businesses are finally getting some favoritism in this new round of stimulus. Just yesterday President Biden announced that Congress will open a special two-week PPP application window this Wednesday for businesses with fewer than 20 employees. The Wall Street Journal reported about this yesterday, so I’ve also included a link for further details on that as well.
So if you, or perhaps a small business owner you know, might be eligible the time to act is now (or tomorrow, you know what I mean).
Eligible Borrowers Can Obtain A Second PPP Loan
- The Paycheck Protection Program was designed primarily to help business owners retain their employees. Under the new law, PPP borrowers are eligible for an additional loan (a second draw) if they meet certain criteria. To qualify, businesses must employ 300 people or fewer. They must have used or will use the full amount of their first PPP loan. And they must demonstrate a minimum 25% reduction in gross receipts during any one quarter in 2020 from the same quarter in 2019.
Those who are eligible may apply for up to 2.5 times the borrower’s average monthly payroll during 2019 or no more than $2 million—whichever is less. The maximum amount is significantly less than the first round of the PPP, which allowed borrowers up to $10 million.
Hard-hit businesses—those in the accommodations and food services industries—may qualify for second-draw loans of up to 3.5 times their average monthly payroll costs, which equates to 140% of their original PPP loan.
- PPP Loan Forgiveness Rules Remain Intact
The forgiveness rules and processes are generally the same for second-draw loans as they were for the original PPP loans. Borrowers can have their loan forgiven in its entirety if they use the funds to pay for eligible costs during the applicable covered period (any time frame between eight and 24 weeks from loan disbursement).
To qualify for full forgiveness, at least 60% of the loan funds must be spent on payroll costs. The rest may be used for business mortgage interest payments, rent, utilities or other new eligible expenses such as certain operations expenses, supplier costs and worker protection expenditures. More information is expected soon on the additional eligible expenses.
Once the loan proceeds have been exhausted, borrowers can apply for forgiveness within 10 months of receiving the loan. Detailed documentation of PPP-related spending is critical for borrowers to earn maximum loan forgiveness. Acceptable documentation includes paid checks, payroll documentation, receipts and billing statements. As indicated below, some borrowers will not be required to submit supporting documentation with the forgiveness application, but must keep those documents in case of subsequent review by the SBA.
- The PPP Loan Forgiveness Application Is Simplified
The Small Business Administration had 24 days from the legislation’s enactment to develop forms and instructions for a one-page forgiveness application for loans under $150,000. Borrowers must sign and submit the form and include critical details such as the number of employees retained, the estimated amount spent on payroll and the total loan amount. Borrowers must attest to the accuracy of the certification and that they complied with PPP requirements. Supporting documentation will not be required with the simplified forgiveness application, but must be retained for four years for possible future review by the Small Business Administration.
- Enhancements To 7(a) Loans
The SBA’s 7(a) loan is designed to help small businesses thrive. Under the CARES Act, the SBA covered six months of payments on all loans existing as of March 27, 2020, and any new loans issued before September 27, 2020. Under the new law, these borrowers will receive an additional three months of payments from the administration, beginning in February 2021. Borrowers who take out new loans before October 1, 2021, will receive the first six months of principal and interest payments from the SBA. All payments provided for in the new stimulus law will be capped at $9,000 a month.
To help owners navigate the pandemic, the agency covered six months of payments on all existing loans and any new ones issued before September 27, 2020. Under the new law, relief will continue to be available to new borrowers who take out loans within six months, as the SBA will cover the first six months of principal and interest payments (capped at $9,000 a month) through September 2021. Starting in February 2021, existing borrowers receive three months of waived principal and interest payments, up to $9,000 per month.
New provisions to the 7(a) loan program include a guaranty increase to 90%, up from 75%. Borrowers will get three months of principal and interest payments on existing 7(a) loans, capped at $9,000 per month, starting in February 2021.
The law also provides for an additional five months of payments for existing borrowers (as of December 27, 2020) in industries hit hardest by the pandemic. These impacted industries include:
- Educational services
• Arts and entertainment
• Accommodation and food services
• Mining and logging
• Apparel and clothing
• Sporting goods, hobby companies, music stores
• Air transportation
• Ground transportation
• Publishing industries
• Motion picture and sound recording
• Rental and leasing
• Personal and laundry services
Small businesses are key to our nation’s path to economic recovery, and we need entrepreneurs to strengthen the backbone of our economy. Through the new Covid-19 relief bill, the SBA’s loan programs can continue to provide the financial relief that small business owners need to help them recover and, ultimately, thrive.
Here's a link to the full article on Financial Advisor’s website if you’re interested.
Here’s the article from The Wall Street Journal referencing the small business application window.
Have questions? Ask me. I can help.
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