Economic Aid PPP loans FAQs

As we predicted last week, the U. S. Small Business Administration (SBA) announced on January 8th that the Paycheck Protection Program (PPP) will re-open to applicants the week of January 11th.

FAQs related to Economic Aid Payroll Protection Program (PPP) loans

The program runs from January 11, 2021 to March 31, 2021. However, we believe the $284 billion in funds will be depleted well before March 31^st so we encourage you to apply as soon as possible. Only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11, and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.

Where can I apply for a Second Draw PPP loan?

There are thousands of banks and financial institutions participating in the PPP loan program. The active banks we listed by state (see homepage map), your current bank, or the online financial institution(s) we list on our Find Me a PPP Lender page are all options to explore.
What are the eligibility requirements?

The Applicant must certify:

• Employs no more than 300 employees; if NAICS Code 72 (accommodation and food services) or if a news organization owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit employs no more than 300 employees per physical location.
• It has realized a reduction in gross receipts (aka revenues) in excess of 25% relative to the relevant comparison time period. For loans greater than $150,000, the Applicant has provided documentation to the Lender substantiating the decline in gross receipts. For loans of $150,000 or less, the Applicant will provide documentation substantiating the decline in gross receipts upon or before seeking loan forgiveness or upon SBA request.
• It was in operation on February 15, 2020 and has not permanently closed.
• Current economic uncertainty makes this loan request necessary to support operations.
• It received a First Draw Paycheck Protection Program Loan and, before the Second Draw PPP Loan is disbursed, will have used the full loan amount (including any increase) of the First Draw Paycheck Protection Program Loan only for eligible expenses.
• The funds will be used to retain workers and maintain payroll, or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
• Has and will not received a Shuttered Venue Operator grant from the SBA.
• Ownership is not a member of Congress, the Administration, or the spouse of such person and business is not engaged in political or lobbying activities (including public policy, political strategy or think tank firms).
• Not a business with ownership or board members in China.
• Not a publicly traded company.
• Ownership of 20% or more of the business has not been convicted of a felony or pending a charge and has not within the last five years made false statement s in a loan application or federal financial assistance application.
• Principal place of residence for all employees included in the Applicant’s payroll calculation is the United States.

How large of a PPP loan may we receive?

In general borrowers may receive 2.5x average monthly payroll; 3.5x if accommodation and food services business (NAICS code 72). Maximum Second Draw PPP loan is $2 million.

How do we calculate average monthly payroll?

“Payroll costs” are defined the same way for Second Draw PPP loans as First Draw PPP loans. A borrower’s average monthly payroll costs can be based on one of these timeframes:

• Calendar year 2020 or calendar year 2019 or
• For seasonal employers, any 12-week period between 2/15/19 and 2/15/20 or
• For new businesses (started after 2/15/19 but before 2/15/20) the average for the number of months the startup was in business

What is the definition of a seasonal employer?

An employer that does not operate for more than 7 months in any calendar year or that during the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33% of the gross receipts of the employer for the other 6 months of that year.

What is the application that must be filed for a Second Draw PPP loan?

The applicant must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form) or the lender’s equivalent form.

What documentation is needed to substantiate payroll costs?

For businesses with employees, Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group 33 health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s.

For the self-employed with employees (Schedule C filers), the applicant’s 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate loan amount), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable, must be provided. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020

For the self-employed (Schedule C filers) without employees, the applicant must provide (a) its 2019 or 2020 (whichever was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020.

How do we calculate the 25% reduction in revenues (aka gross receipts)?

Must show revenues dropped by 25% or more for one quarter in 2020 compared to the same quarter in 2019 or, if more convenient do document, a 25% annual drop in 2020 compared to 2019.

For businesses not opened for the full year in 2019, the borrower may compare full one quarter in 2019 to any quarter in 2020.

What documents are required to prove a 25% + reduction in revenue?

For loans greater than $150,000, documentation sufficient to establish that the applicant experienced a 25% + reduction in revenue must be provided at the time of application, which may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements.

For loans of $150,000 or less, documentation sufficient to establish that the applicant experienced a 25% + reduction in revenue on or before the date the borrower submits an application for loan forgiveness, or, if the borrower does not apply for loan forgiveness, at SBA’s request. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements

What do we include in gross receipts (aka revenues)?

Gross receipts to include all revenue in whatever form received or accrued (in accordance with 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. 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. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. Gross receipts do not include the amount forgiven from a First Draw PPP loan.

If I did not get the first PPP loan via the CARES Act, can I apply for a PPP loan this time?

Yes, however if you did not get a “First Draw” PPP loan from March through April 2020, then your PPP loan application this time will be for a First Draw PPP loan. If you did receive a First Draw PPP loan and have spent the full amount of eligible expenses, you are eligible for a Second Draw PPP Loan. First Draw PPP loans are under the rules established via the CARES Act; Second Draw PPP loans are under the rules established by the Economic Aid Act enacted on 12/27/2020.

Are Second Draw PPP loans eligible for forgiveness like First Draw PPP loans?

Yes

Should I apply as soon as possible?

We believe so, as we are predicting the fund will run out before every eligible small business can apply. See our PPP analysis here along with our prediction that the funds will run out in two weeks or less.

What are the differences between this and the prior PPP legislation?