PPP Loan for Small Businesses

Second Round PPP Loan for Small Businesses

Last year, small businesses struggled to survive.  Many didn’t.  The pandemic grind continues, but it appears help is on the way.  Let’s talk about round two of the Paycheck Protection Program (PPP), a forgivable loan for small businesses.

When the first version of PPP rolled out last year, many had difficulty obtaining relief funds, in large part due to confusion surrounding the program.  While we are not experts in this matter, we do have some knowledge worth sharing.  We hope you find it useful and helpful.

This article is not comprehensive. This article is not legal advice.  We’re focusing on helping other small businesses learn the basics about how to access this loan.  We’re not a financial institution. You should contact your bank and your accountant while working through the PPP loan process.

Background

Last spring, Congress approved the first PPP, loaning money to small businesses to keep them afloat during the pandemic. These loans were designed to be forgiven by the government so long as the money was spent correctly.

The goalposts moved several times. As it stands, so long as you use the funds for payroll only, forgiveness has been fairly straightforward. Even if you don’t have the full amount forgiven, these loans have better rates than anything else we’ve seen and are typically worth getting. Here are a few facts:

• First-round Paycheck Protection Program Loans are “First Draw PPP Loans”, these are for the businesses that didn’t use the PPP Loan option last year.
• Second round Paycheck Protection Program Loans are “Second Draw PPP Loans”, and are for those who are heading back for round two of these loans.
• The first day to apply for new First Draw PPP Loans is January 11, 2021.
• The first day to apply for Second Draw PPP Loans is January 13, 2021.
• The final day for either is March 31, 2021.

This program is first-come, first-serve and the money allocated by congress for these loans may run out if you wait. Hustle.

Second Draw PPP Loan Requirements

1. You must have a business. This includes, but is not limited to independent contractors, eligible self-employed individuals, sole proprietors, nonprofit organizations, C-corporations, S-corporations, LLC’s, partnerships, etc… (If the government recognizes you as a legitimate business, you’re fine in essence).
2. You must have 300 or fewer employees, (there are a few other exceptions, but we’re writing this for small businesses, so we’ll leave the giant corporations to reading other articles).
3. Experienced a revenue reduction of 25% or greater in 2020 relative to 2019 (you must have made 25% less money in 2020 vs. 2019, or at least for one quarter of 2020 vs. 2019).
4. Received a First Draw PPP Loan. (Can’t be eligible for a second if you haven’t gotten the first. That said, just apply for the first one if you haven’t already, you’ll jump the queue anyway).
5. Have used, or will use, the full amount of the First Draw PPP Loan or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower. (You must spend money, shucks).

How to Calculate the 25% reduction requirement

Two different methods here:

1. Pick a quarter (3 months) from 2020 and 2019 (must be the same quarter in each year) and show that you made 25% less money in gross receipts (your accountant can help you with this if you struggle with the bookkeeping).
2. If your annual 2020 gross receipts are 25% less than they were in 2019, that also works (again, if you struggle with bookkeeping, hit up your accountant on this).

Loan Terms

• 1% interest rate calculated on a non-compounding, non-adjustable rate.
• Maturity is five years.
• No personal guarantees required.
• No collateral required.
• All loans will be processed by all lenders under delegated authority and lenders will rely on certifications from the borrower to determine borrower eligibility (Your bank will be the one giving you the loan after making sure you’re eligible).
• The SBA guarantees 100% of the loan (Your bank will be getting paid by the SBA regardless of whether you pay them).

Loan Forgiveness

If you’re borrowing less than $150,000.00 you can apply for forgiveness with a one-page attestation, which will be released in the next few weeks by the SBA, along with documentation of your 25% revenue reduction. The details on this have changed, so once you get the loan, stay in touch with your bank and promptly provide them with all information they need.

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