The stimulus packages provided by the government through the Small Business Association (SBA) for the Payroll Protection Program (PPP) have guidance that continues to change quickly. The Consolidated Appropriations Act 2021 provided $284 billion in additional PPP funds for small business owners. The terms and conditions of the second round of funding are different than the first round of the PPP loans. Understanding the qualifications and acting quickly to take advantage of the additional funding are very important. The timeframe to apply for the second round of PPP loans was recently extended to May 31, 2021 with the signing of the PPP Extension Act of 2021. This article details the terms, eligibility, and funding for the second-round funding of PPP loans.
Similar to the first round of funding, the second round of PPP loans are funded through banks and lenders. The second round is forgivable if used for the appropriate covered expenses. At least 60% of the loan must be used to pay workers’ payroll expenses. Other covered expenses include operational expenses, supplier costs, worker protection expenses, utility costs, rent or mortgage interest payments, and property damage. The funds are forgivable just like the first round of PPP loans. The forgiveness period for the second PPP loan may be an 8-week or 24-week forgiveness period. The interest rates are set at 1% and no guarantee or collateral are required. The loans mature after five years, and lenders are not allowed to charge processing fees for establishing these loans. Remember to maintain the proper documentation of the fund disbursement and to apply for loan forgiveness no greater than 10 months after the conclusion of your covered period. Loan payments are deferred for 10 months from the end of the covered period or when you receive verification of forgiveness of your loan, whichever comes first. For PPP loans that are less than $150,000, the loan will be forgiven with the completion of a form and certifying details to the lender. The certifications will include the number of employees, the amount of the loan spent on payroll, and the total loan amount.
The eligibility for the second round of PPP loans is different from the first round of funding. To apply for funding, your business must have been in operation on February 15, 2020. Eligibility requires a business to have 300 employees or fewer. Also, the business must have a 25% decrease in any quarter’s gross receipts from 2019 to 2020, which shows the company has experienced financial hardship. Gross receipts include all revenue, including interest and dividends. Further restrictions may also apply, so be sure to read the provisions for any potential variations that may include or exclude your eligibility. New organizations are now eligible for the PPP Loans. They include Trade Organizations, Chambers of Commerce, and not-for-profits or government entities engaged in tourism marketing. Owners with non-fraud related felony convictions and owners who are delinquent on student loans are also eligible. Publicly traded companies and entities engaged in political activities are ineligible for the second round of PPP loans.
To obtain the funds, you will need to verify the funds are needed for business operations and your business is not permanently shut down. You must also certify that you have already or are planning to use the first PPP loan for eligible expenses. You can take an initial withdrawal if you have not already taken a PPP loan. First time PPP borrowers may take 2.5x your average cost for payroll or $10 million, whichever is less. If this funding is your second round of PPP loans, you can take the lower of 2.5x average cost of payroll or $2 million. For certain businesses in the food and hospitality industry, you can apply 3.5x your average payroll costs up to $2 million. Eligible businesses have an NAICS code beginning with 72 (Look up your business at naics.com). Payroll costs can be calculated using your average payroll costs for the calendar year 2020, the calendar year 2019, or the one-year period prior to the PPP loan application. Additionally, partnerships are eligible for 2.5x their average monthly distributions, and independent contractors and sole proprietors can determine their PPP loan amounts using their gross income. Seasonal business may also have different qualifying criteria.
If you plan to take the second draw on the PPP loan, act quickly as the application process ends on May 31, 2021. Don’t miss the opportunity for the funding if you qualify under the Act. If you have additional questions, contact an LBMC expert here.