It is rightly said that every cloud comes with a silver lining. This is very true so, as far as COVID-19 is concerned. Despite changing the way we live and work, and ravaging the economy, there are some pieces of good news. The second round of the Paycheck Protection Program Loans will soon be available to help small business owners weather these next few months of the pandemic.
What are PPP Loans anyway?
The Paycheck Protection Program (PPP) Loan is a type of small business loan designed to help keep workers on the payroll. This is especially meant to help small businesses that have been impacted by COVID-19 from terminating their employees due to economic hardship. Congress approved another $284 billion in funding for these loans in the stimulus bill enacted December 27, 2020. Applications for the second round will start during the week of January 11th.
What kinds of PPP loans are available?
The second round primarily aims to provide funding for:
First time PPP loans for businesses who qualified under the CARES Act but did not get a loan
Second round loans for businesses that got a PPP loan in the earlier round but now need additional funding
Loans for businesses that either returned their first PPP loan or did not get the full amount they qualified for
Remember. For all these types of PPP loans, no collateral or personal guarantee is required. What makes these loans extremely helpful is that they may be completely forgiven if spent on eligible expenses (mainly payroll) during a specific time period. Any amount not forgiven becomes a loan at 1% for five years.
Who is eligible for the 2nd round of PPP loans?
Small businesses and independent contractors are the intended beneficiaries of the second round of PPP loans, especially if they previously qualified for one.
Businesses that can apply include the following:
Small businesses, nonprofit organizations, veteran’s organizations, Tribal businesses, and small agricultural cooperatives that meet the SBA size standards.
Sole proprietors, self-employed individuals, or independent contractors.
New: Certain small news organizations, destination marketing organizations, housing cooperatives, and 501(c)(6) nonprofits may now also be eligible.
Qualifying Criteria
As these PPP loans are primarily meant to help small businesses impacted by COVID-19, there are a few important qualifying criteria.
The business may not have more than 300 employees for 2nd draw loans, or 500 employees for 1st draw loans.
For 2nd draw loans, the business must have at least a 25% reduction in revenues in at least one quarter in 2020 when compared to the same quarter in 2019.
Businesses with multiple locations (that qualified under the CARES Act) are also eligible if they have less than 300 employees in each location.
Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 people per location will qualify.
For businesses who secured the first round of loans, they must have used or will use the full amount of the initial PPP loan for authorized purposes before the second round is disbursed.
Businesses that don't qualify for the 2nd Round
While intended to help small businesses overcome the difficulties due to COVID-19, there are certain businesses not covered by the PPP loans. They include:
Businesses that aren't normally eligible for SBA loans
Businesses where the primary activity is lobbying
Businesses with certain ties to China
Publicly Traded Companies
Please Note: The CARES Act made an exception for certain non-profits and agricultural cooperatives.
How much money can a business get as part of the second round?
The maximum loan amount for the second round of PPP loans is $2 Million. (Please remember that this is the MAXIMUM amount)
Realistically, your eligible loan amount will be 2.5 times your monthly average payroll costs based on 2019.
For seasonal businesses, the loan will be based on the average monthly payroll costs for any 12-week period between February 15, 2019 and February 15, 2020
Businesses with a NAICS code beginning in 72 (generally hospitality businesses) may receive up to 3.5 times average monthly payroll cost
An eligible business entity can only receive one loan in this round
What does payroll include?
Payroll is the same as defined in the CARES Act
Salary, wages, commissions or similar compensation,
Payment of cash tips or equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips),
Payment for vacation, parental, family, medical, or sick leave;
Allowance for dismissal or separation;
Payment required for the provisions of employee benefits including insurance premiums (employer cost);
Payment of any retirement benefit (employer cost);
Payment of State or local tax assessed on the compensation of employees.
Please Note: There is one new addition. Group benefits are defined to include group life, disability, vision, or dental insurance.
What Payroll does not include:
The compensation paid to an employee in excess of $100,000 on an annualized basis.
Any compensation of an employee whose principal place of residence is outside the United States.
Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Do not include amounts paid to 1099 contractors; they may apply on their own.
Does this round of PPP loans come with loan forgiveness?
Yes! Similar to the first round of PPP, the new loans may be entirely forgiven provided they are spent for the proper purposes (primarily payroll) during the proper time period.
Additionally, there will now be a simplified (but not automatic) forgiveness for loans of $150,000 or less.
What can the money be spent on?
Like the first round of PPP, this program is primarily intended to keep employees on payroll and to pay for other non-payroll business expenses.
Eligible non-payroll expenses include:
Rent
Mortgage interest
Utilities
Covered operations expenditure
Covered property damage cost
Covered supplier cost
Covered worker protection expenditure
In order to obtain full forgiveness, borrowers will need to spend at least 60% of loan proceeds funding on qualified payroll expenses. Borrowers may spend up to 40% on other qualified non-payroll expenses, during the covered period.
Is there anything else I need to know?
For this latest round of PPP Loans:
No credit check is required.
There is no personal guarantee.
Normal SBA collateral requirements are waived.
Loans of $150,000 or less have simplified forgiveness
How do I apply for the second round of PPP loans?
These loans are made by lenders approved by the SBA.
For help with securing a second round PPP loan for your specific business, we invite you to schedule a PPP consultation with us.
To help you understand this better, we've created a short video that you can access here.
This video features our CEO Kara Janowsky as she talks about the latest updates from the most recent updates about the Paycheck Protection Program
You can learn more about:
The latest round of additional PPP funding
What the loan amounts will be?
How to determine if you qualify?
And a whole lot more!
Check out the video and see how you can benefit from this timely program. Let us know what you think and if you have any questions!
We are here to help.
Loan Portal Open for Some Institutions
Update 1/12/2021 at 10:07pm MST
To promote access for smaller lenders and their customers, the SBA has opened the PPP application portal for Community Financial Institutions (CFIs) for the early phase of the recent funding for PPP loans. This includes approximately 10% of all lenders. Most banks will see the application process open next week.
You can find a list of these institutions here.
