New Round of PPP Loans

For those who have suffered financial losses due to Covid-19 in 2020, the following might be of interest to you. SBA is offering a new round of PPP2 Loans for those who received a PPP loan in 2020 and reopening PPP loans for those who haven't received an initial loan.  The SBA is currently taking applications via community financial institutions and is expected to open up the application process to other financial institutions this week.

 Do you Qualify for a PPP2 Loan?

To qualify for a Second Draw PPP Loan, you have to meet five requirements:

• You're a business, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization, eligible for a First Draw PPP Loan, veteran’s organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or eligible nonprofit news organization that:

• Has 300 or fewer employees, unless you're a business that satisfies the North American Industry Classification System (“NAICS”) code beginning with 72 or an eligible news organization with more than one physical location.

• Experienced a revenue reduction of 25% or greater in 2020 relative to 2019 (more on this below).

• Received a First Draw PPP Loan

•  Have used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower"

Do you Qualify for a PPP first draw loan?

These loans are available to borrowers who were in business on February 15, 2020 and were one of the following:

• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
• Sole proprietors, independent contractors, and eligible self-employed individuals.
• Not-for-profits, including churches.
• Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 500 employees per physical location.
• Sec. 501(c)(6) business leagues, 
•  that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.  Sports leagues are not eligible.
• News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business or not-for-profit public broadcasting entities with a trade or business under NAICS code 511110 or 5151. The size limit for this category is no more than 500 employees per location.

Maximum loan amount:

In general PPP and PPP2 borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (subject to wage cap of $100,000 per employee) in 2019 or 2020, or for the 12 month period prior to your application. PPP borrowers with NAICS codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.

Eligible Costs for Forgiveness:

PPP and PPP2 loans can be forgiven if the funds are used on eligible costs. Eligible costs include payroll, rent, mortgage interest and utilities. The following costs are now also eligible:

• Expenditures related to complying with Covid-19 Federal health  and safety guidelines;
• Certain property damage costs related to vandalism or looting due to Covid-19 public disturbances;
• Expenditures to suppliers that are essential at the time of purchase to the recipients current operations;
• Expenditures related to business software or cloud computing service that facilitates business operations.

For full loan forgiveness, payroll costs must be at least 60% of loan proceeds for the covered period.

Application Process

I recommend that you contact your financial institution as soon as possible about applying for your PPP or PPP2 loan.  The round 2 loans require much of the same documentation as was required for the initial PPP loans and therefore you may not have to provide it all over again.

PPP Loan Forgiveness

 How to Get Your PPP Loan Forgiven

Are you a PPP loan recipient? If so, it's time to consider applying for PPP loan forgiveness. PPP loan forgiveness is not automatic, you must apply for it, and you must apply within 10 months from the last day of the covered period. What is the covered period, you ask? Let's cover that next.

Establishing your covered period:

For loans applied for after June 5th, the loan's covered period is the 24 weeks starting with the date of the loan disbursement. (Include your disbursement date when figuring the 24 weeks.) Those who applied before June 5th have the choice of using the 8 week period from the loan disbursement date or the 24 week period as their covered period.

If you are eligible to choose an 8 week covered period and spent the full PPP proceeds on qualified expenses in that covered period, I'd recommend choosing the 8 weeks as your covered period rather than the 24-week option, it'll minimize the documents you have to submit. However, if you choose the 8 week covered period your loan forgiveness submission will be due earlier than if using the 24 week covered period.

When to apply for loan forgiveness:

If you are using the 24 weeks as your covered period you might be inclined to wait to file for forgiveness since you will have well into 2021 to apply. I caution you not to wait too long: Throughout this PPP loan process there have been many rule changes, if you qualify for full forgiveness why not get it out of the way sooner rather than later? You don't want to be caught cramming in an application at the last moment or having to deal with the application when your accountant is busy preparing tax returns and has no time to help you with it. Some banks are processing the loan forgiveness applications in batches, notifying customers when to file for their forgiveness. Many banks, just this week have suspended processing forgiveness applications as the new legislation unfolds promising simpler procedures for loans up to $150,000.

Be aware that the rules for forgiveness are still changing. Originally any EIDL grant received (not the loan, but the non-repayable grant portion) would be deducted off of the forgiveable PPP amount. This past Sunday president Trump signed into legislation new law that states the EIDL advance grant is not to be deducted from the forgivable PPP loan amount.

How to apply for loan forgiveness:

After reading the news you might think applying for loan forgiveness is just a matter of filling out a form 3508, 3508ez or 3508s. Be forewarned, it's not that simple. Even though the new legislation outlines a simplified one page forgiveness process for the PPP loans of $150,000 or less, you'll probably find that your bank may request more supporting documentation than the promised one-page form.

For those applying for loan forgiveness now, your bank will ask you for documentation to support the expenses being claimed for the loan forgiveness so be prepared to have all of the following ready to upload for the covered period:

Remember to receive full PPP forgiveness that at least 60% of the PPP proceeds must be spent on payroll expenses, with the remaining balance on other eligible expenses. You must have maintained the same number of full-time employees or their equivalent for the covered period with compensation at the same level as the pre-covid-19 period.Summary of wages paid (a 3rd party report is preferable if available;

Substantiating payroll expenses:

• Copy of forms 941 and state payroll filings;
• Copies of cleared payroll checks and EFTPS payroll tax payments;
• Copies of bank statements
• Health insurance invoices, and cancelled checks showing their payment;
• Retirement plan contributions (cancelled checks and payment receipts).

Substantiating non-payroll expenses:

• Mortgage interest: Lenders statements/cancelled checks/payment receipts;
• Rent or lease payments: Copy of lease, cancelled checks and/or receipts
• Utility payments: Copy of invoices, canceled checks and/or receipts.

Your bank will probably generate a prefilled form 3508S or 3508EZ for you to sign, so don't worry about downloading and completing your own form.

Self-employed Schedule C PPP recipients without employees are probably at this point wondering what you are supposed to submit, and how much you can claim in wages for yourself? You can claim the entirety of the PPP loan proceeds as owner compensation not to exceed $15385 for an 8 week covered period, or $20833 for a 24 week covered period. If you don't have employees you will just submit a copy of your 2019 Schedule C to substantiate the amount of forgiveness.

Please be sure to contact your accountant for the latest updates on the PPP program and to be sure you get the PPP forgiveness that you are entitled to. Your CPA can also assist you in applying for a second PPP loan if eligible.

This post will be updated as terms of the new legislation unfold and when the new forgiveness form is released.

Key Takeaways:

1. You must apply for PPP loan forgiveness, it's not automatic

2. A new simplified form for loans less than $150,000 is due to be released at the beginning of Jan 2021

3. There is a second round of PPP loans being released to those in need, projected to roll out the 2nd week of January 2021