FAQS on PPP and latest Economic Aid Act from Congress
What are you talking about?
The Paycheck Protection Program (PPP) was first created last April as a result of the shutdowns caused by Covid -19. Congress has spent several months working out a second round of money to assist people affected by the pandemic. A part of the bill signed by the President in late 2020 included more provisions for small businesses.
How does it work?
First of all, it clarifies a few items left unanswered in the first round concerning the forgiveness process. It went further to allocate a large sum of money for a second round of PPP loans for small businesses. Applications begin later this month and end March 31, 2021.
What did the new bill clarify for previous PPP loans?
Income Tax Issue: The plan all along has stated that the loans would not need to count as income if they were ultimately forgiven. That remains the same and now they have clarified that you can use the expenses you used those monies for as a reduction of revenues for your business income. This has not yet been clarified by the state taxing authorities on how it will be handled, but at least for the Federal government we have clarity.
Simplified Forgiveness Process: Also, the forgiveness application process and form will be simplified dramatically for those loans of $150,000 and less. The new forms will be available later in January. You may choose to wait and see what simplifications the new forms will include before filing for forgiveness on the first round of PPP loans. Look to your lender for specific guidance and assistance here.
EIDL Advance: Finally, if you applied for an EIDL loan last spring and received a forgivable advance, you will be happy to know that those funds will no longer be deducted for forgiveness against your PPP loan leaving a debt to pay off. If you already paid back that unforgiven portion, your lender will sometime in the near future receive funds to eliminate that loan or remit payment to you as the borrower if you already paid off that EIDL advance balance.
What is the new round of PPP all about?
They have broken this into two pieces labeling them 1st Draw and 2nd Draw. You can think of the 1st draw as those people who qualified but did not apply for PPP during the first round last spring/summer. The 2nd Draw is for those that did apply last spring/summer and wish to apply for more assistance.
So what is the 1st Draw about?
The same businesses as the first round qualify but SBA also added a couple other categories of businesses. It is best to see your lender for whether your business applies for inclusion in this round. Furthermore, there are other expenditures that can be included than were allowed in the first round. If you did not apply for the full amount available to you during the first round of PPP, see your lender for specifics as you may qualify for more.
So what is the 2nd Draw about?
For those that did receive PPP funds earlier in 2020, they can apply once again if they meet certain criteria. To qualify you must have had a 25% reduction in gross receipts in a quarter in 2020 versus the same quarter in 2019. You can pick any quarter in 2020 to compare to the same quarter in 2019. If you did not see that reduction, you do not qualify. The terms and amounts available are the same as earlier. However, if you are a restaurant or in the hospitality industry with a NAICS code starting with 72 you are eligible for 3.5 times monthly payroll versus 2.5 times payroll for all other businesses.
Can I still apply if I have not asked for forgiveness yet from the first round?
Yes, you can still apply for a 2nd Draw if you meet the 25% reduction qualification.
What websites could I go to for more information?
www.sba.gov and www.treasury.gov
Any other caveats to express?
Yes….as always, you should seek the counsel of your lender, accountant and tax preparer as needed. Finally, while this guidance from the SBA and Treasury is current as of today, we have all learned that they are still providing additional information as more questions are asked. We want to help you with this FAQ sheet to provide what we could at this time.
Respectfully submitted by Peter Scheffert, Community Resource Bank, and Rick Estenson, Merchants Bank.
Feel free to contact us for any clarifications.