With the second stimulus bill, businesses are eligible for a second PPP loan if they meet certain conditions. One of those conditions is showing a 25% reduction in revenue from 2019 to 2020.
Editor's note: On Tuesday, May 4th the PPP ran out of general funds and the SBA stopped accepting new PPP loan applications. A reserve of funds is still available for community financial institutions that lend to businesses run by women, minorities, and underserved communities. Additionally, a reserve of funds remains for applications previously submitted but not yet reviewed by the SBA. If you have already submitted your loan application, however, this does not guarantee you funding.
The 25% reduction in revenue criteria only applies to businesses applying for their second draw PPP loan. This new, second PPP loan means new eligibility requirements.
To apply, a business must have used up their first PPP loan, have no more than 300 employees, and show a 25% reduction in revenue from 2019 to 2020.
For loan amounts under $150,000, the 25% reduction needs to be proven during the forgiveness process. If your loan amount is greater than $150,000, you will need to prove it during the application process.
Further reading: Do I Qualify for the PPP Loan?
If a business started in 2020 and was operational on February 15, 2020, it is eligible for a second PPP loan. You must use Q1 2020 as your comparison period. The 25% reduction can be shown using Q2, Q3, or Q4 2020.
Gross receipts is the total amount of money your business has received in a given period.
The SBA provides a detailed explanation on what's included in gross receipts:
"Receipts means all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances."
You can find your gross receipts by looking at line 1 or 1C of your respective tax return. You can also find your gross revenue and returns and allowances by looking at your income statement.
Do not include any relief received in 2020 in your gross receipts.
Toni's Temporary Tattoos received a PPP loan in 2020 and applied for forgiveness in December of the same year. Toni is now looking to apply for a second draw PPP loan.
In looking at her year end financials, Toni sees that her business recorded $250,000 in gross receipts in 2020. When she checks her records, she sees $500,000 in gross receipts recorded in 2019. That's a drop in revenue of 50% between 2019 and 2020.
Because Toni's business saw a greater than 25% reduction in revenue on the year, she is eligible for a second PPP loan.
Bixby's Farmer Bees Honey received a PPP loan in 2020 that was fully forgiven. But now, Bixby's business needs more funds to make it through to spring.
When looking at his annual numbers, his business recorded $200,000 in gross receipts in 2019 and $180,000 in 2020. At first glance, he thinks he's ineligible—until he looks at his quarterly earnings.
Although he didn't record a 25% reduction in gross receipts when comparing years, Bixby is still eligible. He recorded a 25% reduction in Q2 2020 relative to what he recorded in Q2 2019. This is the minimum reduction amount required to be eligible for a second ppp loan.
We put together a video demonstrating how to calculate a 25% reduction in gross receipts between a quarter in 2020 and the same quarter in 2019. The example uses income statements generated from within the Accracy app. However, the same process applies if you have your income statements housed elsewhere.
In the latest guidance provided by the SBA, it states that no documents are needed when applying for your second PPP loan. Instead, you must certify that you are applying in good faith on the basis that you experienced a 25% or greater reduction in gross receipts.
However, documents are required when you apply for forgiveness of your loan. If it's found you did not meet the revenue criteria, your loan will not be forgiven. You will be required to pay back the entirety of the loan. If the SBA believes that your application was made knowing you did not have a drop in revenue, you will face fines and potential imprisonment.
If you are comparing your gross receipts in 2020 to those in 2019, you must provide tax returns for both years when applying for forgiveness. Your tax return doesn't need to be filed, but will need to be complete. It's best to complete these forms with a tax professional.
If you are comparing your gross receipts in a quarter in 2020 to the same quarter in 2019, you will need to provide financial statements for those quarters when applying for forgiveness. Bank statements covering both quarters will also need to be provided.
How Accracy can help
Get ready for your next PPP loan application by having your bookkeeping up to date. Use the financial reports we provide to prove a 25% reduction in revenue. Our expert bookkeepers can answer any questions you have about the relief programs ensuring you're getting the support you need to keep your business thriving. Then, once it's time to file your taxes, you'll have access to everything you need for a stress-free tax season.
We are offering free 1 Month Basic Bookkeeping to all new customers so you can experience Accracy's seemless and professional services.
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