New PPP Guidance for Small Businesses

The pandemic continues to impact small businesses, and we applaud Congress for providing much-needed relief by reopening the PPP at $284B, allowing for initial and second draw loans, plus simplified loan forgiveness for loans under $150K.  Below we will breakdown the new guidance released so far as of January 6th, 2020 regarding the SBA Paycheck Protection Program – Round 3 (PPPr3).

2 Types of PPP Loans

• Initial Draw PPP Loan: Small businesses that did not receive a loan under the first PPP program may be eligible for a loan under this new round.
• Second Draw PPP Loan: Small businesses that received a PPP loan under the first PPP program may be eligible for a second loan.

PPP Amounts

• $15B for SMBs with 10 or fewer employees or loans of less than $250k in low-income areas
• $25B for Second Draw PPP Loans for businesses with 10 or fewer employees or loans of less than $250k in low-income areas
• $35B for Initial Draw PPP Loans

PPP Eligible Borrowers

• Businesses, some nonprofit organizations, self-employed workers, and independent contractors are among those eligible.
• Existing PPP borrowers may apply for a second loan, provided they have 300 or fewer employees and can demonstrate they experienced a 25% reduction in gross receipts during a quarter in 2020 compared with the same quarter in 2019.
• Additional eligible borrowers include:○Housing co-ops with no more than 300 employees○Certain broadcast and news organizations○501(c)(6) nonprofits and “destination marketing organizations” that generally don’t engage in lobbying and have fewer than 300 employees

Eligible Borrowers for Second Draw

Must:

• Use the full amount of First Draw PPP funds before disbursement of a Second Draw
• Have no more than 300 employees
• Be in operation as of February 15, 2020
• 25% or more drop in gross revenue from any quarter in 2020 compared to the same quarter in 2019

Amount for Second Draw

• 2.5x average monthly 2019 payroll costs
• 3.5x for NAICS Code beginning with 72 -hospitality & food services
• Max Loan Amount Hard cap at $2M
• Can only get one Second Draw

Expenses that count as “Payroll”

• Payroll Costs = Sum of payments to employees that are:
  • A salary, wage, commission
  • Tips, Vacation, parental, family, medical or sick pay
  • Allowance for dismissal or separation
  • Payment for group health care benefits, including insurance premiums
  • Payment of retirement benefits
  • Payment of state or local tax on employee compensation (e.g., payroll tax)

New expenses that count as payroll include employer-provided group insurance benefits (life, disability, vision, and dental)

Live Venue Grants

SBA can provide grants to live venues. Recipients that received a live venue grant can’t participate in PPP.

Initial Draw –Ineligible Businesses

• Businesses not in operation as of February 15, 2020
• Businesses that received grants under the new “live venue” program
• Publicly-traded companies
• The President, Vice President, heads of executive departments, Members of Congress, and their spouses

Second Draw –Ineligible Businesses

• Lobbying organizations
• Entities affiliated with China or Hong Kong
• Anyone representing a foreign government
• Businesses that receive grants under the new “live venue” program
• Businesses with multiple locations and over 300 employees per location
  Second Draw –Ineligible Businesses

New Guidance for Seasonal Businesses

The new bill defines a seasonal employer to be an eligible recipient which:

• Operates for no more than seven months in a year, OR
• Earned no more than 1/3 of its receipts in any six months in the prior calendar. This definition applies to any loan made before, on, or after enactment including the forgiveness of the loan.

Increase in Loan Requests

• Borrowers who returned some or all of their original PPP loan can re-apply.
• Borrowers whose loan amounts have changed because of new rules can work with their lenders to get the additional amount.

Forgivable Eligible Expenses

Same as first PPP rounds:

• Payroll Costs, Mortgage Interest Payments, Rent, Utilities, Healthcare (benefits + insurance premiums)

Round 3 Expanded to include:

• Certain operation expenditures including business software and cloud computing products and services; the tracking and processing of payroll expenses; costs related to human resources, sales, and billing; or the tracking and accounting of records, expenses, supplies, and inventory
• Property damage related to public disturbances not otherwise covered by insurance or any other form of compensation
• Expenses related to protecting workers such as PPE purchases or modifications/renovations made to comply with federal, state, or local guidance issued in relation to the pandemic.
• Costs owed to suppliers for essential goods purchased prior to receiving your latest PPP loan or perishable goods purchased before or during the “covered period” of the loan.

Allows existing loans to use the new expenses for forgiveness.

Covered Period for Forgivable Expenses

The Covered Period for the previous PPP round was 8 or 24 weeks. Now the Covered Period for all loans (including those made before this new law) can be 8 weeks, 24 weeks, or anywhere in between, but no later than March 31, 2021. This decision is up to the borrower.

Simplified Loan Forgiveness Process for Loans Under $150K

Simplified, one-page certification that only requires:

1. Description of employees they retained because of PPP
2. Estimated amount of PPP spent on payroll
3. Total amount of their PPP loan. The SBA has 24 days to issue a new form.

Second Draw Forgiveness

Forgiven in the same manners as the First Draw PPP Loans.

EIDL Reductions

EIDL advances will no longer reduce the amount by which a borrower has its PPP loan forgiven. The SBA will issue rules for borrowers who already received forgiveness.

Tax Deductions

Any expenses you use to apply for forgiveness are now also tax-deductible.

Documents Required for Underwriting Your PPP Loan

• 2019 or 2020 Form 940 or 941 for all 4 quarters (you can also provide a Form 940 or all 4 941s for the 12 months prior to application for 2ndDraw loans)
• If in business in 2019 and the loan amount is above $150,000, 1 quarter of Bank Statements in 2019 vs the same quarter in 2020to prove 25% loss (up to the borrower which quarter to select)
• If the business started in 2020 (prior to 2/15/20) and the loan amount is above $150,000, please provide us with Bank statements from 2 consecutive quarters (Q1 and Q2, Q2 and Q3, or Q3 and Q4) to prove a 25% loss
• If you don’t have bank statements, you can prove 25% loss by providing us with Quarterly Financial statements(same quarter for 2019 v. 2020) or applicable tax document which shows Gross Income decreased between 2019 and 2020 (draft 2020 tax documents are not valid)
• February 2020 Bank statement or payroll pay stub for the period cover 2/15/2020
• Filled out PPP calendar
• Signed Application
• Driver’s License & Voided Check
• If you are self-employed IRS Form 1099-MISC detailing nonemployee compensation received (box 7)

If you are interested in applying for a PPP loan, initial or second draw – you can start you application process here – Apply for PPP Loan.