COVID-19 and Paycheck Protection Program Round 2
Last updated on 05/21/2021 at 7:52 pm
This article will focus on businesses that already received the first round of PPP funding and are interested in whether they qualify for Round 2 of the PPP.
Our initial article about the first round of PPP assistance from the CARES Act in 2020 can be found here.
Borrowers should perform due diligence and check with lenders for the most up-to-date information.
My initial PPP fund ran out and my business still needs assistance. Is there additional funding available to me?
Yes, the Economic Aid Act (“Act”) was passed into law in December 2020. This Act extends the Paycheck Protection Program (“PPP”) and allocates $284 billion in funding to businesses during the pandemic.
Are there any changes to the PPP under this Act?
Yes, the Act divided the PPP into three different types of loans: a) First time PPP loans for businesses who qualified under the CARES Act but did not get the initial loan. b) Second draw PPP loans for businesses that obtained a PPP loan but need additional funding; and c) Additional funding for businesses that returned their first PPP loan or did not get the full amount for which they qualified.
What type of businesses qualifies for the second round of PPP?
All businesses eligible to apply for the first round of PPP are also eligible to apply for the second round. Furthermore, certain small news organizations, destination marketing organizations, housing cooperatives, and 501(c)(6) nonprofits are also eligible.
I received the initial PPP loan. How do I qualify for the second round?
The Act has different requirements than the first round of PPP. The general requirements are: a) Be an eligible business. b) Has 300 employees or less (businesses with NAICS code 72 have a different requirement). c) Used or will use all first round of PPP funding before the expected date for the second PPP loan to be disbursed to the borrower. d) Demonstrate a 25% reduction in gross receipts during one quarter of 2020 as compared to the same quarter of 2019.
How do I show a 25% reduction in gross receipts for the year 2020?
A business may demonstrate a 25% reduction in gross receipts during one quarter of 2020 as compared to the same quarter of 2019. For example, a borrower with gross receipts of $50,000 in the second quarter of 2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40 percent between the quarters, and is therefore eligible for a Second Draw PPP loan (assuming all other eligibility criteria are met).
Alternatively, if you were in operation in all four quarters of 2019, you can qualify if the annual receipts show at least a 25% reduction in 2020 compared to 2019.
Finally, if you were not in business for the year 2019 but was in business before February 15, 2020, it seems that you can compare the second, third, or fourth quarter of 2020 to the first quarter of 2020. Note: the amount of any forgiven first draw PPP Loan is not included in a borrower’s gross receipts.
How do I calculate my loan amount?
The loan amount is calculated in the same way as before: you are eligible for a loan equal to 2.5 times your average monthly payroll costs. Average monthly payroll costs can be calculated using one of the following:
- The 12 months before the loan.
- Calendar year 2019.
- Calendar year 2020.
Businesses such as hotels, restaurants, and other accommodation and food service businesses can borrow up to 3.5 times their average monthly payroll costs. If you are a seasonal business, check with your potential lenders since there are some updated regulations.
Are there any changes for farmers?
Yes, there are. If you received the first round of PPP, contact your lender as you may be able to amend your application to receive more funding as long as the loan has not been forgiven. Farmers applying for the second round will now use gross income, instead of net income, on schedule F (if filed) to calculate the loan amount. Please check with your lender for more guidance on the calculation of the loan amount. If you did not receive funding under the first round, it is unclear at the moment whether you can apply for the second round under the new rules. Please check with potential lenders as more guidance may be coming in the weeks ahead.
What are the terms for these PPP loans?
The payback period and interest rate remain the same as the first round of PPP. However, the maximum loan amount has been decreased to $2 million from $10 million.
What can I use the fund for?
All eligible expenses covered in the first round PPP remain in place. The Act extends eligible nonpayroll expense to four additional categories:
- Covered operations expenditures: payments for any business software or cloud computing service that facilitates business operations such as accounting or billing.
- Covered property damage costs: costs related to property damage due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
- Covered supplier costs: payments to a supplier covering contracts and purchase orders in effect before taking out the second loan.
- Covered worker protection expenditures: expenditure for the business to adapt and comply with health and safety requirements, including the purchase of personal protective equipment.
Is this loan forgivable?
Yes, the loan may be forgiven if it is used correctly. The terms of forgiveness remain the same as the first round of PPP. 60% of the fund must be used on eligible payroll expenses while 40% must be used on eligible non-payroll expenses. EIDL grants are no longer subtracted from the PPP loan forgiveness amount. If this already happened to you, reach out to your PPP lender to see if this can be remedied.
What are some of the tax consequences of PPP loans?
Congress has clarified some tax issues related to the first round of PPP. Under the Act, expenses paid with PPP fund from either round that are forgiven will be tax-deductible. Additionally, any forgiven loan amount from either round will not be taxable income to the borrower.
When can I apply for the loan?
PPP fund will be made available on January 11, 2021 to certain institutions and targeted businesses and will become more widely available in the days after. Any business interested in applying should reach out to potential lenders immediately. The program will end on March 31, 2021.
If I did not apply for PPP in the first round, can I still do so?
It depends on the type of business. First-time borrowers may still apply for the PPP but there have been changes on eligibility. Please check with lenders for the most recent regulations.
What about the EIDL program?
The Act extends the EIDL program to assist hardest-hit businesses. Borrowers should reach out to the SBA for more information since there are new requirements for this program. Some of the requirements include:
- The entity is located in a low-income community.
- The entity has suffered an economic loss of greater than 30%.
- Employ not more than 300 employees The application for EIDL should open on January 17, 2021 and expires on December 31, 2021.
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