PPP Second Draw

The Biden administration updated PPP guidelines to help smaller businesses access emergency funds. February 24-March 9 was designated as a priority window for businesses with fewer than 20 employees. The formula for calculating loan amount eligibility has also been adjusted from net to gross income, allowing for more forgivable money beginning the last week in March.

A busiess can apply for second-draw PPP loans if they’ve applied for loan forgiveness for the first PPP loan.

Small businesses, non-profits, sole proprietors, independent contractors, self-employed individuals, agricultural co-ops, and veterans organizations all qualify for PPP funding so long as they:

    • Have 300 or fewer employees
    • Can demonstrate a 25% reduction in revenue in at least one quarter of 2020 compared to 2019

For most businesses, the 25% reduction in revenue calculation is a simple comparison of gross revenue for a quarter in 2020 compared to the same quarter in 2019. If the business wasn’t in operation for the entirety of 2019, but was in operation before February 15th, 2020, any subsequent quarter of 2020 can be compared to the revenue of the first quarter to demonstrate reduction in revenue.

During the PPP loan application process, basic calculations will suffice. However, full documentation of revenue calculations will be needed for disbursement and forgiveness applications.

The general rule of thumb with a PPP loan is 2.5x monthly payroll costs. Businesses will calculate this average by adding up monthly costs and dividing by twelve (seasonal businesses can use a modified 3 month period).

Like the CARES Act, this round of funding features loan forgiveness. The Small Business Administration has a simplified one-page loan forgiveness application for loans smaller than $150,000, which makes forgiveness much easier to obtain with this round of funding.

To qualify for forgiveness, 60% of the loan needs to go to payroll costs, with the remaining 40% going to approved operating costs such as rent, utilities, and costs associated with COVID-19 or the public disturbances of 2020 (employee protection upgrades, repairs, etc.). This expands the usage of PPP funds from the original requirements to remain eligible for full forgiveness.

Posted in IRS