High-Level Takeaways From SBA’s First Round of Guidance About PPP Second Draw Loans

2. What if you already got PPP-1?
If you received a first-round PPP loan, you must state that you have or will have used your first PPP loan for authorized purposes on or before the date you receive your second PPP loan.

3. How do you qualify for PPP-2?
The PPP second draw loans are intended to target smaller and harder-hit businesses, and the rules for second draw loans are more restrictive to ensure the funds are provided to those businesses with the greatest need. In order to be eligible, the business must:

A) Employ no more than 300 employees;

B) Have used or will use the full amount of their first PPP loan prior to disbursement of the second draw loan; and

C)Be able to demonstrate at least a 25{e35ad5deade2b1836e1a7165e88b5ddcce5d6d638285c1b555e60a0b013a3e9a} reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019.

D) If the entity was not in business during 2019 but was in business by February 15, 2020, then such borrower can compare their gross receipts during the second or third quarter of 2020 (April 1 – June 30) to the first quarter of 2020 (January 1 – March 30) to see if they qualify.

4. How do you calculate your payroll cost?
Payroll costs are now calculated on either calendar year 2020 or calendar year 2019, instead of the 12 months rolling from the application date.

5. How do you provide proof of revenue loss?
If your loan application amount is under $ 150 K, you will not be required to provide documentation to prove your revenue loss at the time of application but will have to when applying for forgiveness.

6. How do you calculate gross receipts?
a. Gross receipts include all revenue in whatever form received or accrued (following the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.

b. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.

7. What if your business is permanently closed?
When making a second-round PPP loan application, you have to certify that your business is not permanently closed and require the funds to support your business’s ongoing operations.

8. If your business started part-way through 2019 or at the beginning of 2020, you still may be able to get a PPP loan.

a. Sole Proprietorships and Independent Contractors – PPP Loans
–  Sole proprietorships, contractors, and gig-workers are eligible for a PPP loan based on their 2019 Schedule C or 1099 MISC-forms.
–  For contractors, if you began operations after June 30, 2019, you can apply for the PPP using your 2019 history and 1099-MISC forms from January 1 to February 29, 2020.
–  Sole proprietorships that began after June 30, 2019 can prepare a preliminary Schedule C for January 1 to February 29, 2020.

b. S Corps and C Corps – PPP Loans

You will be limited to a PPP loan amount based solely on your payroll numbers. Payments to contractors and any draws or distributions would not be considered payroll costs. If your business was begun in 2019, use the payroll numbers from the portion of 2019 you have plus your payroll numbers from January 1 to February 29, 2020, and divide by the number of months, and then multiply by 2.5 to find your loan amount.

c. Partnerships – PPP
For partnerships, you will be limited to a PPP loan amount based solely on your payroll numbers and guaranteed payments that have been reported on Schedule K-1s for partner/worker.

To find the value of your PPP loan if your partnership was begun partway through 2019, you can use the payroll paid for the portion of 2019 you had the partnership plus your payroll numbers from January 1 to February 29, 2020 to find your payroll average. Since you won’t have the Schedule K-1 prepared yet for the guaranteed payment, be prepared to show proof that you made a payment to the partner(s) in question by having copies of bank statements if requested.

Take your payroll total from those months and divide it by the number of months then multiply by 2.5 to find your loan amount. Payments to contractors, and any draws or distributions are not considered payroll costs.

This loan amount can be fully forgiven over a 24-week period. You will need to file a forgiveness form with your lender, but wait to use the new easy form that as of 12/31/2020 hadn’t been released.

9. How do I apply for Forgiveness?
Borrowers who received less than $ 150,000 in PPP loans during the first round will now only have to submit a one-page application for forgiveness, but all of the same rules apply. The signer of this application may as well sign the longer application to make sure that they have everything done right because personal liability can be enormous. Our recommendation is that clients consult with their CPAs carefully and fill out the long application but actually submit the short application, with their answers in the long application being kept in case they are ever investigated.

10. What If I didn’t apply or was rejected the first time?
If you were rejected in the first round or didn’t receive funds, you have a chance to apply again for an initial PPP loan. This time, loans are capped at $ 2 million as opposed to $ 10 million previously, but businesses with up to 500 employees are still eligible.

Our Fees:
First Round of PPP Loan: $ 2,250
Second Round of PPP Loan: $ 150-$ 499 based on the lender requirements
PPP Loan Forgiveness – One page Form: $ 199
PPP Loan Forgiveness – Longer Application: $ 599

Contact Ebere’s team for help HERE