As most of the nation knows, shortly after our Christmas holiday Congress and President Trump passed another economic stimulus package giving many of our struggling citizens an additional $600 stimulus check. The Small Business Administration was immediately directed to offer a second round of Payroll Protection Program relief to small businesses, known as the PPP Second Draw.
Many of you may be seeing a notice from your business bank in your email box or when you visit the bank website to do online banking that this is now available. PPP Loans are backed by the SBA and funded through your local bank; you should work with your regular business banker to get the PPP Loans. This loan is “forgivable” if you follow the rules on using the money, and given that you do, making these PPP loans a powerful relief for your company during these unprecedented times.
President Biden last week directed the SBA to ease requirements on small businesses with less than 20 employees. In addition, he directed them to enable sole proprietors and individuals doing business to have the ability to access this program as well.
In general, you can ask for 2.5x your monthly payroll. However, any given individual payroll liability is capped at $100,000/annual salary, so if you have employees that are being paid more than $100,000/year, then you must reduce loan request such that each employee over $100,000/year is reflected at $100,000/year. Then you can ask for two and a half times that. You then have between eight and 24 weeks to use the loan money for payroll, as well as a portion of it can be used for expenses like rent, utilities, etc.
While the intention here is to keep all of your employees, and this is an incentive to do so, you may lose employees. Employees may quit, or cuts still need to be made over the 8+ weeks. PPP allows up to a percentage of those funds to be used for certain non-payroll costs. After the funds are used and 8+ weeks have passed, you can ask for forgiveness of this loan. Now, there is a second round of this available to businesses that have previously taken a PPP loan, but still need help stabilizing because of the effects of COVID on their business. PPP Second Draw has a few rules this time to be eligible to thin out who can take advantage of a second PPP loan, which also is eligible for forgiveness.
- If you did not take or did not feel you were eligible to take the first round of PPP funding that was made available during the start of the COVID pandemic, you still can. The rules have changed some, which likely would allow you to take advantage this round, including if you are in the hospitality industry or a non-incorporated business (sole proprietor/independent contractor).
- If you did participate in the first round of PPP, the PPP Second Draw is now available. It is just as easy (if not easier since last spring) as applying in the first round. However, there are a few rules to be eligible for round two of PPP.
(Please note these are not requirements to take advantage of the first round of PPP if you have not already applied for PPP funds in the past, these rules do not apply to you)
a. The most significant rule is if your business has had one quarter in 2020 that was at a minimum 25% less than a prior quarter from the previous year. For instance, if you did $1000 of business in Q4 of 2019, but only $750 of business in Q4 of 2020, that would be a 25% decrease over a quarter in the prior year.
b. You must have less than 300 employees for the second draw. You may have heard in the first round of PPP funding that some very large businesses were taking advantage of the program, causing strife that the small businesses were not able to get into the initial funding period because funds ran out quickly at first. To keep this pattern from repeating, the employee cap was put into place so this would not happen the second time. There is now an employee limit to ensure the small to medium businesses get this needed relief.
c. You must have used the full amount of the 1st round of PPP funding. So, if you did not do it initially because you did not think you were eligible, you may want to re-look at it again, as those requirements have changed.
Forgiveness has changed as well.
If you have not already submitted your paperwork for forgiveness on your first round of PPP and your loan is under $150,000.00, your paperwork just got a whole lot easier. Loans under $150,000.000 have a single page certification that designates the number of employees the employer was able to retain because of the loan. This amount was able to be used towards payroll, and that the loan was used as intended making the forgiveness process for loans under $150,000 a much easier and quicker process.
The PPP Program is a great benefit during this time for all businesses that are being challenged because of the pandemic. This second draw is an excellent way to ensure your 2021 starts on solid ground if you are eligible. Put together a plan on how this relief can help you strategically allocate your budget and expenses to get your business back to sustainability going forward.
As always, feel free to reach out if you need help. That’s why we are here. Contact Mebuis Business Advisors Today!