PPP Loans - Round 2
If you missed the announcement last week of the Paycheck Protection Program (PPP) news, it’s understandable. It was a busy week between the Georgia senate runoff, continued post election news, COVID updates and the mass chaos that erupted in the Capitol.
Congress has approved $284 billion in new loans. That is far less than the $669 billion total allocated last year. Lenders will now determine how soon you can apply, and you will have 10 weeks to do so. The last day to apply for and receive a PPP Loan is March 31, 2021.
To qualify for a Second Draw PPP Loan, you have to continue to meet these requirements (I modified this list to for the artist community):
- You're a business, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization, eligible for a First Draw PPP Loan
- Has 300 or fewer employees
- Experienced a revenue reduction of 25% or greater in 2020 relative to 2019 (more on this below).
- Received a First Draw PPP Loan
- Have used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower
The 25% revenue reduction is the new twist, and you can calculate it in two ways
- You can compare your quarterly gross income for one quarter in 2020 with gross receipts for the corresponding quarter of 2019.
- If you were in operation in all four quarters of 2019, you can qualify if the annual receipts show a 25% or greater reduction in 2020 compared to 2019.
The documentation required to substantiate your application is generally the same as documents required for First Draw PPP Loans. You won’t need to submit additional documentation to substantiate payroll costs if you:
- used calendar year 2019 figures to determine its First Draw PPP Loan amount,
- used the calendar year 2019 figures to determine its Second Draw PPP Loan amount, and
- the lender for the same for the applicant’s Second Draw PPP Loan is the same as the lender for the first draw loan (lenders can require additional information)
The information isn’t required because presumably your lender already has it. In addition to not having to submit any documentation, for loans under $150k, you don't have to provide documentation of the 25% reduction with the application. You WILL need to provide it at the time of applying for forgiveness. Forgiveness for the first round PPP Loan is not included in the 25% reduction calculation.
If you don’t meet the above criteria or are applying for more than $150,000, you must submit documentation that proves your 25% or greater revenue reduction in 2020 relative to 2019.
The terms and conditions of the Second Draw PPP Loans are subject to the same terms and conditions as First Draw PPP Loans. These include but are not limited to:
- The SBA guaranteeing 100% of the loans
- No collateral required
- No personal guarantees required
- 1% interest rate calculated on a non-compounding, non-adjustable rate
- The maturity is five years
- All loans will be processed by your lender and lenders will be permitted to rely on certifications of the borrower to determine borrower eligibility
For the vast majority of borrowers (those of you borrowing less than $150,000), your lender will let you know how to apply for forgiveness.
Keep in mind, you will be required to provide documentation of revenue reduction if you didn’t supply that documentation at the time of the loan application.
As always, this is not legal or financial advise - please contact your accountant or lawyer with any questions.