On December 27, 2020, the President approved a $900 billion coronavirus relief bill. In it, Congress appropriates funds to help those hit hard by the impact of COVID-19 through The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the "Act").
The Act provides assistance to small businesses mainly by revamping the familiar Paycheck Protection Program ("PPP"). As with the last bill, appropriately planning your uses of funds for the next round so you can be eligible for loan forgiveness is key.
The lending professionals at SmartBiz Loans have put this guide together so you can get the emergency funding your small business deserves this year. Here are the details we know now and we’ll update as more information becomes available.
Overview of Key PPP program features
The second round of PPP (Paycheck Protection Program) funding has been voted on to help small businesses stay afloat, protect employees, and build business operations. This new round will allow for more uses for PPP funds while continuing to focus on payroll costs and related expenses. Borrowers who received a previous PPP loan are now eligible for a second PPP loan.
What is the PPP program?
In short, a PPP loan provides emergency funding for small businesses to pay expenses like payroll and rent. The Paycheck Protection Program is designed to provide a direct incentive for small businesses to keep their workers on the payroll. Funds are forgivable if certain requirements are met. The SBA will forgive loans based on specific criteria outlined below as long as the funds are used for eligible expenses. PPP loans offer a 1.00% interest rate if the loan is not forgiven. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
How can you spend loan proceeds?
The first PPP round of funding focused on payroll costs. If you obtain a second PPP loan, you may spend your loan proceeds on new eligible costs. These include:
- Certain operations expenditures (such as software, human resources, and accounting needs).
- Property damage repairs related to public disturbances that occurred in 2020.
- Personal Protective Equipment (PPE) used to comply with federal, state, or local health and safety guidelines like masks and gloves.
- Certain groups of insurance benefits, including group life, disability, vision, or dental insurance.
What businesses are a fit for a PPP loan?
Businesses with less than 300 employees that are negatively impacted by the pandemic are eligible to apply for a PPP loan. Businesses with a loan from the previous round are also able to apply.
For 72 NAICS code, the number of employees is slightly different. Those businesses may have between 300-500 employees total, but no more than 300 employees in one location.
What is the amount of PPP funding you can apply for with a 2nd loan?
Those applying for a 2nd loan can ask for funding equal to 2.5 times monthly payroll costs up to $2 Million. Restaurants can apply for 3.5 times monthly payroll costs.
Does my small business qualify for PPP?
If you are a previous PPP borrower, you need 300 employees or less. Independent contractors and sole proprietors are also eligible at this time.
Is a PPP loan right for my business?
If you have employees and are struggling to meet payroll and other expenses, a PPP loan second draw might be the right choice for you. This applies to sole proprietors and independent contractors to help pay their own salary as well.
How to apply for PPP funding
You will be able to apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
SmartBiz Loans has successfully guided business owners through the PPP program and is in an excellent position to help with this round. Our streamlined application will calculate the allowable loan amount for you based on your payroll. Our seasoned financial professionals are on hand to help guide you and get you the PPP funding from participating banks on our platform that you deserve.
Start an application as soon as possible here:
Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Consult with your local lender as to whether it is participating in the program. View a list of lenders participating in the Paycheck Protection Program by state.
Do I need to go directly to a bank for funding?
Not all banks are participating in the PPP loan program. However, you may have another option: fintechs (financial technology companies). The Small Business Administration has approved a number of fintech companies – like SmartBiz Loans - to offer loans via partner banks. SmartBiz might prove easier for business owners who don't have longstanding relationships with a traditional bank.
How much are small businesses getting from PPP?
According to data on the government’s Paycheck Protection Program (PPP), about 600 mostly larger companies, including dozens of national chains, received the maximum amount allowed under the program of $10 million.
Officials from the Treasury Department and the SBA have argued the program primarily benefited smaller businesses because a vast majority of the loans ― more than 87 percent ― were for less than $150,000, as of August 2020. But the new data shows more than half of the $522 billion in the same time frame went to bigger businesses, and only 28 percent of the money was distributed in amounts less than $150,000.
This should not discourage small business owners as different regulations on business and loan size are being debated.
Are PPP loans forgivable?
Yes! For the former round of funding, participants were eligible for loan forgiveness for the amounts spent on authorized expenses over 24 weeks after loan disbursement (or eight weeks if they choose).
To be eligible for PPP loans in this 2nd round, small businesses would need to fit the following parameters:
- Eligibility would be limited to small businesses with 300 or fewer that have sustained a 25% revenue loss in any quarter of 2020.
- Small 501 c6 organizations that are not lobbying organizations and that have 150 employees or fewer, such as local chambers of commerce, economic development organizations, and tourism offices, would become eligible for PPP.
- Forgivable expenses are expanded to include supplier costs and investments in facility modifications and personal protective equipment to operate safely.
- Business expenses paid for with the proceeds of PPP loans are tax deductible, consistent with Congressional intent in the CARES Act.
- Loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less.
- Funding for independent live venue operators affected by COVID-19 stay-at-home orders.
The proposal includes set-asides for:
- First-time PPP borrowers with 10 or fewer employees.
- Second-time PPP borrowers with 10 or fewer employees.
- First-time PPP borrowers who have been made newly eligible.
- Second-time returning PPP borrowers.
- Loans made by community lenders.
What can I spend my PPP funds on?
Forgivable expenses would be expanded – from payroll costs, mortgage, or qualified interest, rent, and utilities – to also include certain covered supplier costs, worker protection expenditures, and operations expenditures.
When can small businesses apply for PPP?
The second round of the PPP funding program opens soon. Keep an eye out to determine when you can start an application. It’s suggested to apply ASAP as funding will run out, as it did with the previous round.
PPP and taxes
A recent IRS ruling to address 2020 economic-relief law could force many small businesses to pay taxes on government aid meant to help through the pandemic.
The agency on November 18, 2020 said the businesses cannot deduct expenses such as payroll and rent, paid for with money from the Paycheck Protection Program of the CARES Act. Such deductions are common when those expenses are paid for with revenue from running a business but is still being reviewed in Congress.
Be sure to check with your accountant or another tax professional to assess the impact of this law.
Visit the SmartBiz Loans Learning Center regularly for updated information about these funding options.
Other funding options during the pandemic
If your business is well positioned for expansion, there are other funding options that may be a fit:
SBA 7(a) working capital loans
The low rates and wide use of proceeds make SBA 7(a) loans the “gold standard” in small business funding.
Changes to the SBA 7(a) program include an increased guaranty percent. This has been increased to 90% for all traditional 7(a) loans, including all loan amounts. This will be automatically repealed on October 1, 2021 (first day of the SBA’s next fiscal year)
Learn how these loans work, requirements, and how you can apply here.
Bank Term loans
A Bank Term loan from lenders in the SmartBiz network is a short-term, fixed-rate loan with stable monthly payments. These loans are a great fit when you need funds quickly and want to lock in your interest rate. The same streamlined process is used for term loans through banks in the SmartBiz network.
More information is on the SmartBiz website here.
*What you need to know: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial professionals, and the applicable SBA rules, for further information. The availability of PPP loans remains subject to Congressional and SBA approval, including the amount of funding available to banks and the quantity of eligible applicants considered on a first-come, first-served basis. The information provided is based on laws, rules, regulations, and related guidance with respect to the Paycheck Protection Program (PPP), including guidance issued by the U.S. Small Business Administration (SBA). In the event of any discrepancies between the information on this site and the SBA’s site, please follow official SBA guidance.