Paycheck Protection Program funds will reopen to all PPP lenders next week, and with this latest round comes yet another version of guidance aimed at providing clarity to a program that has proven anything but clear for small business owners.
There are some notable changes to the program first approved by Congress last spring to help struggling small businesses stay afloat during the coronavirus pandemic. For example, businesses now can seek a second loan.
But, as we’ve seen before, some aspects of the program remain unclear when it comes to eligibility and forgiveness. Still, program changes may make the process easier. Here are six things to know.
1. It Should Be Easier to Apply for a Second Loan
Although there’s no requirement to use the same bank that you used to get your first PPP loan, there’s a huge time-saving advantage in doing so.
“The first thing to do is go back to the bank that gave you the first loan because they have all your paperwork,” says Alan Lane-Murcia, first vice president and Small Business Administration (SBA) Program Manager at First American Bank in Elk Grove Village, Illinois.
Some banks may still prioritize customers with whom they have an existing business relationship. Lane-Murcia says First American Bank requires applicants to have a deposit account at the bank.
2. You Don’t Have to Be First in Line to Apply
Unlike the first round of lending, which ran out in just 13 days, this wave was designed to exclude some of the bigger businesses and corporations that tapped into the loan program the first time around.
Now, a business can have no more than 300 employees to qualify, down from 500 (restaurants and hotels can have up to 500 employees). Publicly traded companies, lobbying or political businesses and any companies affiliated with China are also ineligible.
3. It Doesn’t Matter When in 2020 Your Business Struggled
To be eligible for a second loan, you must show at least a 25% reduction in gross receipts in any quarter of 2020 versus the same quarter in 2019. This means that even if your gross receipts were down at the start of the pandemic and increased later in the year, as long as you can still show that your business earned less in that quarter of 2020 versus 2019, you’re satisfying that requirement.
4. Loan Forgiveness Should Be Easier to Achieve
A business seeking forgiveness of their PPP loan can now choose an eligible period to spend their funds of any length between eight and 24 weeks. Outlays like operations costs, property damage, supplier costs and worker protection items are now considered expenses eligible for forgiveness, along with the previous allowances for payroll, rent, mortgage interest and utilities.
This expansion of eligible expenses also allows a small business to retroactively claim the Employee Retention Tax Credit (ERC) as far back as March 2020 through the second quarter of 2021. The ERC provides for up to a $5,000 credit per employee during 2020 and up to $7,000 per employee on a per quarter basis of 2021.
Taking advantage of this will require some strategic planning, says Travis Miskowitz, manager of the CFO advisory group at accounting and business advisory firm Wiss & Company, based in Florham Park, New Jersey.
“You can not allocate the same payroll dollars for ERC and PPP forgiveness,” says Miskowitz. He says an eligible business should first max out its ERCs and then apply for forgiveness for up to the allotted 40% of a PPP eligible to be used for non-payroll costs.
5. You Don’t Have to Subtract Economic Injury Disaster Loans (EIDL) From Your Forgivable PPP Funds
The SBA has canceled its previous requirement that anyone who received an EIDL and was applying for forgiveness had to first subtract the amount of the EIDL from the amount that could be forgiven. In other words, if you received both a $10,000 EIDL and a $100,000 PPP loan, you’d only be able to get a maximum of $90,000 of your PPP forgiven.
This is no longer the case, and forgiveness will apply retroactively to all PPP loans. Businesses that already had the EIDL deducted will receive remittance payments—plus interest via their PPP lenders or ACH into their qualifying bank account.
6. The Process Has Been Simplified for Sole Proprietors
When you’re a one-person operation, chances are you don’t have a formal payroll to submit as part of a PPP application.
“The Paycheck Protection Program is not the small business protection program,” says Greg Ott, CEO of Nav, a lending platform that connects small businesses with potential lenders, including PPP loans. “Payroll isn’t an indication of what a small business needs to survive.”
The new SBA rules make it easier for sole proprietors to both calculate their eligible loan amounts and apply for forgiveness. Now, a sole proprietor’s loan amount eligibility is based on their net profit from 2019, divided by 12, to determine an average monthly net profit. This number is then multiplied by 2.5 to calculate what the maximum PPP loan amount might be, subject to a $20,833 cap.
For example, if a sole proprietor’s average monthly income is $2,000 a month, the maximum amount they could receive from a PPP loan would be $5,000 ($2,000 x 2.5). This is more straightforward than the previous calculations used to determine loan size eligibility.
Related: Apply now for SBA Paycheck Protection loans through BlueVine.com
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