Payment Protection Program (PPP)
- Marc Lewis & Associates is not an accounting firm. We do not have an in-depth knowledge of your business’s accounting system or its thoroughness. As such, we do not prepare PPP loan applications nor do we prepare the applications for forgiveness. Though we are happy to answer basic questions when we can, if you need help on either of those tasks, we can refer you to local bookkeepers who would be happy to assist you. In addition, PPP loans are backed by the SBA but issued by financial institutions. Your primary contact should be with your banker who can tell you if they are offering the PPP and what that institution’s participation requirements are.
The original PPP began last Spring and provided forgivable loans to small businesses. To the extent the loan proceeds were utilized for payroll and a few other eligible expenses, they would be forgiven by the government. At the end of 2020, another round of PPP (It is often called the “2nd Draw”). Like the original, it is also a forgivable loan. The qualifications for the 2nd Draw are more restrictive than the original but the list of qualified expenses are broader. The focus of this post will be on the 2nd Draw.
Who Can Apply?
Businesses, some nonprofit organizations, self-employed workers and independent contractors are among those eligible. Previous PPP borrowers may apply for the 2nd draw, provided they have 300 or fewer employees and can demonstrate they experienced a 25% reduction in gross receipts during any one of the first three quarters of 2020 compared with the same quarter in 2019.
What Loan Amount is Your Business Eligible?
Businesses will generally be eligible to borrow an amount equal to 2½ times their average monthly payroll costs. Certain businesses in the restaurant and accommodation industries are eligible for loans that amount to 3½ times their average monthly payroll.
What are the Requirements for Forgiveness of the 2nd Draw?
Borrowers are still required to spend at least 60% of the funds on payroll to receive full forgiveness. Employee benefits, including paid leave, severance pay, insurance premiums and retirement benefits are included in payroll costs. The other 40% may be used on eligible costs. As before, these costs include certain mortgage expenses, rent and utility payments. The bill expands forgivable expenses to include expenditures for personal protective equipment and other gear to protect workers; supplier costs; operations expenditures, such as software; and property damage costs due to public disturbances during 2020. Payroll costs for sole proprietors and independent contractors include wages, commissions, income or net earnings from self-employment (up to $100,000 annualized).
The 2nd Draw, like the original PPP require that you retain your employees, re-hire them by a certain date and many similar provisions. Care must be taken that your business understands those rules since payroll is the main requirement to acquiring forgiveness of the loan.
For loans of $150,000 or less, the business can submit a simplified certification attesting to its eligibility for the applicable revenue loss requirement. The business must also submit supporting documentation on or before its submission of its loan forgiveness application.