Posted: January 13, 2021 | By: LendVer Staff –
The Small Business Administration “SBA” has worked hard to clarify any confusion surrounding the Paycheck Protection Program “PPP” that has remained from the first round. The SBA and Treasury Department have prepared the following documents to help you better understand the PPP and if applying is the right choice for you:
- Paycheck Protection Program Loans – Frequently Asked Questions (FAQs) – (as of December 9, 2020)
- PPP Myth vs. Fact
To assist in your understanding of the PPP, and to help you determine if you should apply for a 1st or 2nd PPP loan—we’ve prepared a short list of the most commonly asked questions we have been receiving:
Q: What is a second-draw PPP loan, and can I apply for another PPP loan if I’ve already received one?
A: Under the Consolidated Appropriations Act 2021, businesses that have not yet received a PPP loan can apply for a 1st loan. Additionally, the Act has created for “second-draw” PPP loans, which allows businesses that have already received a PPP loan to apply for a 2nd PPP loan if the following general guidelines are met (subject to additional requirements):
- The business has 300 or fewer employees (with some exceptions)
- The business suffered at least a 25% reduction in gross revenue in one or more quarters of 2020 when compared to 2019 quarters (there are some exceptions for seasonal and newer businesses)
- Business has used or will use the full amount of first PPP loan
Q: I’ve heard there were a lot of problems with PPP loans, have they been fixed?
A: There were many issues present in the first round of PPP financing. The initiative of rolling out a large-scale stimulus package in the midst of an unprecedented global pandemic and economic crisis, resulted in major issues. PPP funds initially went too fast, guidance was slow to come out from the Treasury and Small Business Administration, loan fraud was a serious concern, loan funds didn’t last long enough for borrowers, the forgiveness process was unclear and cumbersome, an unknown significant tax burden arose for PPP loan recipients, and on and on. Below are a few improvements the new legislation has implemented to address some of the prior issues:
- The maximum loan size for PPP loans has been restricted to $2 million. The implied intent is to make PPP funding last longer and deliver it into the hands of smaller businesses.
- The economics for lenders to make smaller PPP loans has improved, meaning the prioritization by lenders of larger loans should be reduced.
- Businesses with NAICS code beginning with 72 (generally hospitality businesses), can now receive up to 3.5x their average monthly payroll, compared to 2.5x prior.
- The loan forgiveness application for PPP loans less than $150,000 has been streamlined to a 1-page application. This will reduce the burden and expense for the smallest of businesses to obtain loan forgiveness.
- Only 60% of PPP loan funds need to go for payroll costs, with 40% able to be used for other (now expanded) eligible expenses such as operations expenditures, property damage costs, supplier costs, work protection expenditures, and more.
- Borrowers can now choose their covered loan period for an amount of time between 8 and 24 weeks.
- Forgiven PPP loan expenses will be tax deductible, reversing unpopular IRS guidance, and eliminating a significant tax liability for many.
- Entity eligibility has expanded to 501(c)(6)s, housing cooperatives, direct marketing organizations, and there is now greater flexibility offered for seasonal employees.
Q: I’ve heard that PPP loans are only available to applicants that were in operation on or before February 15, 2020. I own a business that was in operation on or before February 15, 2020, but I purchased it after February 15, 2020. Am I still eligible to apply for a PPP loan?
A: Per the Paycheck Protection Program Loans – Frequently Asked Questions (FAQs) issued by the SBA and updated as of December 9, 2020: “Yes. As long as the business was in operation on February 15, 2020, if it meets the other eligibility criteria, the business is eligible to apply for a PPP loan regardless of the change in ownership. In addition, where there is a change in ownership effectuated through a purchase of substantially all assets of a business that was in operation on February 15, the business acquiring the assets will be eligible to apply for a PPP loan even if the change in ownership results in the assignment of a new tax ID number and even if the acquiring business was not in operation until after February 15, 2020. If the acquiring business has maintained the operations of the pre-sale business, the acquiring business may rely on the historic payroll costs and headcount of the pre-sale business for the purposes of its PPP application, except where the pre-sale business had applied for and received a PPP loan. The Administrator, in consultation with the Secretary, has determined that the requirement that a business “was in operation on February 15, 2020” should be applied based on the economic realities of the business’s operations.”
Q: What documentation will I need ready to submit with my PPP loan application, and when will I be able to apply?
A: The SBA and Treasury Department announced January 8, 2021 that the PPP will re-open January 11, 2021, allowing community financial institutions to exclusively make first-draw PPP loans, and second-draw PPP loans beginning January 13, 2021. The PPP will open to all approved and participating lenders at an undetermined date, shortly thereafter, and remain open through March 31, 2021. Funding Circle (our recommended PPP lender) is accepting PPP loan applications now.
The documentation requirements will vary from lender to lender, but will generally include the below. A few early PPP lenders chose to convert the application to an online process, which was allowed by the SBA. Many lenders like The Funding Circle will be administering a completely online application process, to keep applying and receiving a PPP round 2 loan as streamlined and easy as possible. Borrowers interested in applying for a 1st or 2nd PPP loan should also prepare the following documentation as a precaution:
- SBA PPP Application: Familiarize yourself with the PPP first-draw application or second-draw application.
- Financials: 2020 profit & loss, 2019 and 2020 Q1, Q2, Q3, & Q4 business bank statements to document revenue loss.
- Payroll Records: 2019 and 2020 940s, 941s, and payroll reports.
- Business Documents: Articles of incorporation or organization, an IRS Form W9, and a copy of a voided check.
- Personal Information: Valid personal identification such as a color copy of a current drivers license.
- Tax Returns: 2019 and 2020 business tax returns, and/or personal returns if business income is scheduled there.
- Loan Notes: Copy of your existing PPP or EIDL loan note(s) and SBA guarantee number(s) (if applicable)
Don’t hesitate to contact us if you need a free lender or service provider recommendation, have a question, or if you have a topic you’d like us to cover. Don’t forget to check out our featured “Best” lenders and providers, and our recent articles.