In December 2020, a second stimulus bill was passed to make additional PPP loans available to those who did not receive a loan the first time and for those that needed another loan. If you are interested in applying for a PPP loan the following frequently asked questions will help you understand the process.
How Much Money Can I Get From The PPP?
In order to calculate the maximum amount of money that you can borrow from PPP first calculate your average monthly payroll costs of employees whose principal place of residence is the United States. This must be the amount incurred twelve months before the date of the loan. You can borrow two and a half times this amount up to $10 million. Any compensation that you have made in excess of $100,000 per employee should be excluded from your calculation of average monthly payroll costs.
Payments that you can include are payment for vacations, parental and family medical and sick leave that are not covered elsewhere, payments for dismissal or separation, payments for group health care coverage and insurance premiums, payments for retirement benefits, and payments related to state and local taxes assessed on employees’ compensation. You can also add to the total loan amount, any outstanding amounts of Economic Injury Disaster Loan (EIDL) if any made between January 31, 2020, and April 3, 2020, subtract any amount that is forgivable under an EIDL COVID-19 loan.
Am I Eligible For A PPP Loan?
If you own a small business which has 500 or fewer employees, you may be eligible for a PPP loan. Eligible categories include small businesses, restaurant and hospitality businesses, S corporations, C corporations, LLCs, private nonprofits, faith-based organizations, tribal groups and veteran groups. Individuals who are also eligible include people who are self-employed such as independent contractors and sole proprietors who file an IRS Schedule C with their Form 1040. You will not be eligible as a self-employed individual if you are a partner who reports self-employment income. You will not be eligible for a PPP loan if your business is engaged in illegal activities such as if as the owner of a business, you are more than 60 days delinquent on child support obligations, if your business is of a farm or ranch, or if your business is related to a sex or gambling establishment.
If you run a hedge fund, a private equity firm, a public company with substantial market value or a company that is involved in bankruptcy proceedings then you will not be eligible for a PPP loan. If you have a startup business that is backed by venture capital then there are certain conditions that will need to be met to make you eligible.
Can I Apply For A New PPP Loan If I Already Got One?
The good news is that certain hard-hit small businesses can receive a PPP round 2 loan. You will, however, need to show substantial revenue decline and meet the following requirements. You should not have more than 300 employees, you should have used or are planning to use the full amount of your first PPP loan. You need to show a drop of at least 25% in annual gross receipts for any quarter of 2020 as compared to the same quarter in 2019. Your business should also not have permanently closed. You can apply for a loan if you are a self-employed individual, independent contractor, sole proprietor, have a business, are a non-profit, run a small agriculture cooperative, have a veteran’s organization or a tribal business. The maximum amount that you can apply for is $2 million.
Where Can I Apply For A PPP Round 2 Loan?
Most banks and credit unions that process SBA loans will be processing PPP round 2 loans. These five national banks have confirmed their participation in PPP round 2
- Wells Fargo
- Chase Bank
- Bank Of America
- U.S. Bank
- PNC Bank
If you are not a current customer of any of the banks participating in round two of PPP, consider using a loan aggregator to push your application forward. These companies usually have easy application processes. Some aggregator options include Lendio, SmartBiz and Fintechs. Check out the list of approved lenders on the SBA website. Applications are currently open and the deadline to apply is March 31, 2021
Who Qualifies for Full Forgiveness?
In order to have their loans forgiven, businesses will need to use the money for designated expenses. Authorized expenses will be eligible for loan forgiveness if they were spent from eight to twenty-four weeks after loan disbursement. A full forgiveness is possible if at least 60% was used on payroll payments and 40% on specifically mentioned expenses. Partial forgiveness up to 40% is possible on mortgage, interest, rent and utilities. It is important to note that if your loan is forgiven, the expenses will not be tax-deductible. In order to be eligible for forgiveness on the total amount you must meet two criteria.
First of all your full-time average monthly employee headcount should not have declined during the last twelve months. Either you have to restaff or get an exemption if you can’t find qualified replacements for rehiring or due to pandemic related restrictions you cannot return to your previous level of business activity. Secondly, salaries and wages cannot be cut for your loan to become a full grant.
What If I Didn’t Take the Full PPP Amount Last Time?
If you returned a part of your first PPP loan or did not take the full amount that was approved against your loan you can apply for an increase in your existing loan. The increase that you apply for has to be the difference in the amount retained and the amount that had been approved.
What About Forgiveness If I Received An EIDL Grant?
If you have taken an EIDL advance it will have no impact on your PPP loan forgiveness.
How Do I Show a 25% Revenue Reduction?
To be eligible for a PPP round 2 loan you need to show a 25% reduction in revenue from 2019 to 2020. If your loan amount is greater than $150,000 you will need to prove 25% revenue reduction during the application process, if it is lower, you will need to prove it during the forgiveness process. You can show a 25% revenue reduction by comparing the annual gross receipts between 2019 and 2020 as shown on your tax returns or you can show a comparison of gross receipts in a quarter of 2020 against the same quarter in 2019. Gross receipts refer to the total revenue your business received in a given period and includes revenue from sales of products or services, interest dividends, rents, royalties, fees and commissions. Relief Received during 2020 is not to be included in your gross receipts. The documents required may include relevant tax forms, quarterly financial or bank statements
How Can PPP Funds Be Used?
You need to spend your PPP funds in a very specific way if you want your loan to be forgiven. The main purposes to use it are payroll, mortgage interest, rent/lease and utilities with payroll using up a major chunk.
Here is where you can use it for:
- Gross salary or wage
- Gross commissions
- Paid leave under the categories of vacation, family, medical or sick leave
- Dismissal or separation allowances
- Employee benefits costs including retirement contributions
- Back pay (payroll within the 24 week forgiveness period)
- Bonuses to employees including hazard pay up to a fixed amount
- State and local payroll taxes to be paid over the loan period
- To employee retirement plans
- Utilities used for the business which were in service before February 15, 2020
- Operations expenses
- Property damage repairs
- Supplier costs
- Worker protection expenses
PPP cannot be used:
- To pay contractors, subcontractors or 1099 contractors
- To pay yourself unless you are self-employed and are claiming owner compensation replacement.
- To pay outstanding business, corporate or property taxes
- To pay credit card balances, merchant loans or other forms of debt
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