As of December twenty seventh, 2020 the Paycheck Protection Program is again, and Biz2Credit can get your enterprise began with a simple course of that can assist you get funded shortly.
When Congress handed the Economic Aid Act (EAA) on December 27, 2020, it introduced some much-needed monetary aid to the small enterprise group by inexperienced lighting a further $284 billion in small enterprise loans to the U.S. Small Business Administration’s (SBA) Paycheck Protection Program. These new Paycheck Protection Program loans are aimed to get funding into the palms within the companies that want them probably the most—and whereas first-time debtors proceed to be eligible for loans beneath the PPP program, for the primary time, previous PPP debtors may apply for a second PPP mortgage to safe the extra funding they should maintain their companies shifting ahead via the continued pandemic.
These second PPP loans (additionally known as PPP2 loans) are the lifeline many small companies have to maintain their doorways open. But what, precisely, are the eligibility necessities for these second draw loans? Are there any modifications to eligibility for first-time PPP debtors beneath the EAA program vs. the unique PPP? And what steps do small enterprise house owners have to take to make sure they get the PPP mortgage they should help their corporations—whether or not they’re making use of for his or her first spherical or second spherical of PPP funds?
First draw mortgage eligibility necessities
As talked about, PPP2 loans can be found for each first-time debtors and companies which have already secured a PPP mortgage. , let’s evaluation the eligibility necessities for first-time debtors beneath the Paycheck Protection Program.
Under the brand new EAA laws, the eligibility necessities for first-time debtors (additionally known as first draw loans) have remained the identical as they have been beneath the CARES Act and PPP1, together with:
- The enterprise was in operation on February 15, 2020
- The enterprise continues to be open, operational, and isn’t at present engaged in chapter proceedings.
- The borrower is a mall enterprise, eligible nonprofit group, Veterans group, Tribal group, sole proprietorship, self-employed particular person, or impartial contractor
- The enterprise has fewer than 500 workers (or matches the SBA’s small enterprise dimension commonplace within the enterprise’ trade)
- All enterprise house owners with a 20 p.c or increased stake US residents or everlasting residents
- All enterprise house owners haven’t any felony report over the previous seven years
- The enterprise and house owners will not be delinquent on any SBA or federal mortgage with no historical past of defaulting on such loans over the previous seven-year interval
Small companies can apply for a primary draw PPP mortgage of as much as 2.5 instances their common month-to-month payroll prices for a most mortgage quantity of as much as $10 million. (Under the EAA, that quantity is elevated to three.5 instances common month-to-month payroll for any enterprise with a NAICS code beginning with 72—the Accommodation and Food Services trade, one of many hardest hit by the pandemic and COVID-related restrictions).
As lengthy because the borrower makes use of the mortgage proceeds on authorized bills, the total mortgage quantity would qualify for mortgage forgiveness. In order to qualify for mortgage forgiveness, the borrower should meet the next standards:
- The mortgage proceeds have been used to cowl authorized bills. In order to qualify for forgiveness, PPP loans should be spent on authorized payroll prices (together with worker wages and sick depart) and nonpayroll prices—which, along with the unique eligible bills like utilities, mortgage curiosity, and lease funds, have been expanded beneath the EAA to incorporate employee safety expenditures (like PPE), operations expenditures, and property injury to the enterprise’ bodily location because of a public disturbance.
- The mortgage proceeds have been used to pay bills through the lined interval. Only bills {that a} enterprise concern incurs through the lined interval will qualify for mortgage forgiveness. While the PPP1 allowed companies to decide on between an eight-week and 24-week lined interval, companies now have the flexibleness to decide on their very own lined interval—so long as it falls between eight and 24 weeks.
- At least 60 p.c of mortgage funds have been used for payroll prices. In order to qualify for full PPP mortgage forgiveness, companies should spend at the very least 60 p.c of their mortgage on payroll prices.
Second draw mortgage eligibility necessities
Because the SBA needs to make sure that PPP2 funds go to the companies that want it probably the most, eligibility necessities for second draw PPP loans are totally different—and extra stringent.
The variations between eligibility necessities for first-time and second-time debtors embody:
- Number of workers. In order to qualify for a second draw mortgage, debtors should have not more than 300 workers (or, for companies with an NAICS code 72, 300 or fewer workers per location).
- First draw mortgage proceeds. The enterprise should have exhausted (or will exhaust) the funds from their first PPP mortgage.
- Revenue discount. Businesses making use of for a second PPP mortgage should have the ability to present a 25 p.c year-over-year lower in income in at the very least one quarter of 2020.
The most mortgage quantity companies can apply for can be totally different for second draw loans; whereas first-time debtors can apply for a mortgage of as much as $10 million, second draw loans are capped at $2 million.
How to calculate income discount for a PPP2 mortgage
As talked about, with the intention to qualify for a second mortgage via the Paycheck Protection Program, companies want to have the ability to present that they skilled at the very least a 25 p.c lower in income in Q1, Q2, Q3, or This fall 2020.
When the EAA first handed, there have been a variety of questions within the small enterprise group round how, precisely, to calculate and present that income discount. But, in keeping with the Interim Final Rule, there are two methods to calculate and present income discount—and each depend on “gross receipts.”
Gross receipts consists of all income (both money or accrual, relying on the corporate’s accounting methodology), together with gross sales of merchandise and/or companies, curiosity, dividends, rents, royalties, charges, and/or commissions—then lowered by returns and allowances.
Under the brand new interim rule, companies can both calculate income discount by evaluating gross receipts from any quarter within the 2020 calendar 12 months and evaluating these gross receipts to the identical quarter in 2019—or, if the enterprise doesn’t maintain quarterly financials, they’ll evaluate their annual gross receipts from 2020 to their annual gross receipts from 2019.
Submit your PPP software by March 31
Whether you’re making use of for a primary draw or second draw PPP mortgage, mortgage functions are resulting from PPP lenders no later than March 31, though this system’s funds could also be exhausted earlier than then. If you’re planning on making use of for a mortgage via PPP2, be sure that to submit your software to your lender as quickly as attainable.