The $284.5 billion in funding now available through the “second round” Paycheck Protection Program can provide a much-needed financial boost for small businesses struggling in the pandemic-induced economic slowdown. But eligibility for the new round of PPP loans has been narrowed considerably from the first iteration. The maximum loan amount has been reduced to $2 million (down from $10 million). In addition, applicants must be able to show proof that their business has suffered at least a 25% reduction in revenue during at least one quarter of 2020, as compared to the same quarter in 2019.
Calculating the maximum loan amount and providing documented proof of revenue reduction will be a complex process. The Small Business Administration (SBA) and U.S. Treasury have issued an 18-page guide to the calculations needed, which are different for first-time PPP applicants and “second draw” borrowers who received a PPP loan during 2020. Here are the highlights:
For “second draw” applicants…
- Guidance for second time borrowers includes 24 questions, including eight questions focused on the 25% decline in gross receipts requirement
- Calculation of gross receipts for a for-profit business includes all revenue in whatever form received or accrued
- 16 questions concern calculations of maximum eligible loan amount
- The guidance lists documentation required for the application, including information needed to corroborate the 25% reduction in revenue, and documentation to substantiate payroll costs
- Separate guidance applies to partnerships applying for “second draw” PPP loans
- There is also separate guidance for not-for-profit organizations, religious institutions, veterans organizations and tribal businesses
For first time PPP applicants…
- Guidance for “first draw” PPP applicants includes 14 questions
- Guidance includes information on how borrowers should account for federal taxes when determining their payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven
- Topics covered include guidance for self-employed applicants and partnerships, as well as S corporations and C corporations
- Separate guidance is also provided for not-for-profit organizations, religious institutions, veterans organizations and tribal businesses
- There is guidance on including pretax employee contributions (which may be excluded from IRS Form 941) as part of employee gross pay
Excess loan amount errors
Also included in the new guidance is information on previous PPP borrowers who may have received – in error - a loan in excess of their allowable maximum. SBA and Treasury have announced that the borrower may not receive loan forgiveness for any amount exceeding the loan maximum. This is the case whether the loan error was the lender’s or the borrower’s.
Forgiveness forms simplified
Coinciding with the launch of the second round of the Paycheck Protection Program (PPP), the SBA also released updated guidance on loan forgiveness for both the first and second iterations of the program. This includes the publication of new loan forgiveness applications forms.
- Form 3508S can be used by borrowers who received a PPP loan of $150,000 or less, in either the first round or second round. With this form borrowers are not required to submit supporting documentation but must maintain payroll, nonpayroll and other documents that could be requested should the SBA review or audit the loan.
- Form 3508 and Form 3508EZ are for larger loan amounts and require payroll and nonpayroll documentation.
- Form 3508D is for use by certain individuals who must disclose controlling interest in an entity applying for a PPP loan.
The PPP application process, documentation requirements, and accounting for expenses paid by loan funds is, if anything, more complex the second time around. We are available to assist small businesses through the entire process. Please contact us at (781) 407-0300.
Don’t miss out on our “PPP Round Two: More Relief is on the Way” webinar coming up on January 26th! Click here for more details and to register today.