On December 27, a new COVID relief bill was signed changing the Paycheck Protection Program (PPP). The highlight? Some businesses will be eligible for a second PPP loan. Here's what you need to know.
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.
If you did not receive a PPP loan in 2020, you may be eligible to apply for your first PPP loan in 2021.
If you received a PPP loan in 2020, you may be eligible to apply for a second PPP loan if your business suffered a loss in revenue in 2020.
Whether you now take your first or second PPP loan, these loans will have the same terms as the original PPP loan.
This means, like the first PPP loan, the second round of PPP loans will also be fully forgivable if you follow the forgiveness guidelines. At least 60% of the loan must be spent on payroll and the rest spent on other eligible expenses.
If the loan is not forgiven, these loans would have an interest rate of 1% and a term of five years. Loan payments are deferred for 10 months after the covered period ends or when you receive a forgiveness verdict, whichever comes first.
If the following statements apply to your business, you are eligible to apply for your first PPP loan in 2021.
If the following statements apply to your business, you are eligible to apply for your second PPP loan in 2021.
Further reading: How to Apply for Your Second PPP Loan
A 25% or greater reduction can be shown in one of two ways:
Gross receipts is the total amount of money your business has received in a given period. It includes sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
For example, if a business wants to use the second quarter (Q2) of 2019 where they recorded $20,000 in gross receipts, they are eligible if their Q2 2020 gross revenue was $15,000 or less.
Further reading: How to Calculate a 25% Reduction in Revenue for PPP 2
How Accracy can help
Comprehensive bookkeeping is the surest way to show a 25% reduction in revenue. Accracy can complete your 2019 and 2020 books and create your annual profit and loss statements to represent your revenue reduction.
Whether you are applying for your first or second PPP loan, having your books completed by Accracy also shows your net profit and/or payroll expenses to determine the PPP loan amount you are eligible for.
You can also submit these documents to your lender as the required supporting documents to accompany your loan forgiveness application. Learn how you can get started with Accracy for free.
Applications for both first and second time borrowers are open now, and close on May 31, 2021.
The PPP loan amount will be calculated very similarly to the original PPP loan calculation. You are eligible for a loan equal to 2.5 times your average monthly payroll costs. Your average monthly payroll costs can be calculated using either of the following:
There are some exceptions to the loan amount calculation for certain businesses.
Special consideration was given to the food and accommodation industries. Any business with a NAICS code beginning with 72 is eligible for a greater loan amount. You can check your NAICS code through a website like NAICS.com.
Businesses in these industries are eligible for a loan equal to 2.5 times your average monthly payroll costs. The average monthly payroll cost is calculated the same: using the one year period before application, the calendar year of 2020, or the calendar year of 2019.
For these businesses, you are eligible for 3.5 times your average monthly payroll costs for your second draw PPP loan only.
To qualify as a seasonal business, you must satisfy one of the following criteria:
Seasonal businesses are eligible for loans equal to 2.5 times their average monthly payroll cost. But the average monthly payroll cost can be calculated using any 12-week period between February 15, 2019 and February 15, 2020.
This is the same for businesses applying for their first or second PPP loan.
Partnerships are eligible for 2.5 times their average monthly distributions. Their average monthly distributions is calculated by taking their distributions from their 2019 or 2020 Schedule K-1, multiplying it by 0.9235, then dividing by 12.
As of March 3, 2021, sole proprietors and independent contractors determine their PPP loan amount using their gross income. If they are not running payroll, the calculation starts with their gross income as reported on line 7 on a 2019 or 2020 Schedule C. Use either this number, or $100,000, whichever is smaller. Divide this number by 12 and multiply by 2.5 to find your PPP loan amount.
If payroll is being run, take line 7 and subtract the payroll costs in lines 14, 19, and 26. Use a maximum of $100,000. Divide this number by 12 and add it to your average monthly payroll expense. Multiply by 2.5 to find your PPP loan amount.
Further reading: Self-Employment, 1099s, and the Paycheck Protection Program
For the first rollout of PPP loans in 2020, the eligible expenses included payroll costs, rent, and utilities expenses.
The second stimulus bill has expanded on the eligible expenses you can use your PPP loan for. These new expenses include:
These new eligible expenses now apply to all PPP loans, including those obtained prior to August 8, 2020.
A request for an increase in your previous PPP loan amount is now available to some borrowers. It is open to businesses that did not take the full loan amount or returned a portion of their first loan—so long as they haven't already applied for forgiveness.
This allows businesses to receive the difference between their original loan offer and what they ended up taking.
For example, if a business was eligible for $20,000 but only took $15,000, they can apply to receive the $5,000 they previously opted not to take.
The application process may vary from lender to lender. Check in with your original PPP loan lender for more information.
Further reading: How to Request an Increase to a PPP Loan Amount
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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