The Bipartisan Emergency COVID Relief Act of 2020 has been summarized outlining $300 billion to the Small Business Administration. When passed, funding will allow the hardest-hit small businesses to receive a second forgivable Paycheck Protection Program (PPP) loan and other businesses to receive a first one.
Appropriately planning your uses of funds for the next round so you can be eligible for loan forgiveness is key.
Here’s what the SmartBiz® team currently knows now about what may be enacted soon and how you can prepare.
You may be eligible for a second PPP Loan
The current discussions include an opportunity for previous borrowers to get a second PPP loan if their revenue decline meets certain thresholds, currently pegged at 30%. Also, the maximum loan size in this round of up to $2 million, would equal 2.5 times the average total monthly payroll costs plus up to $50,000 for covered worker protection expenditures incurred or paid by the eligible recipient during the period beginning March 1, 2020 and ending on the date of enactment of the Act. PPP funds in this anticipated round would be forgivable if certain criteria are met (see below).
PPP improvements
Forgivable expenses would include covered supplier costs, covered worker protection expenditures, and covered operations expenditures.
- Allows business owners to select a loan forgiveness covered period between 8 weeks and 24 weeks during which to spend loan proceeds on forgivable costs.
- Provides Farm Credit System Institutions with greater certainty and equity in PPP lending participation
- Defines “seasonal employer”
- Eliminates the requirement that EIDL advances be subtracted from PPP forgiveness
- Establishes a procedure in the bankruptcy process if the Administrator determines certain companies in Chapter 11 are eligible for PPP loans.
Support for venues
The second round of funding is also expected to establish a grant program to support shuttered live venues and theaters that have experienced significant revenue losses.
Eligibility
To be eligible for PPP loans in this next round, small businesses would need to fit the following parameters:
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- Meet the applicable SBA revenue size standard
- Includes support 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, and second time returning PPP borrowers. Additionally, there would be a set-aside for loans made by community lenders.
- Have no more than 300 employees (down from 500 in the first round)
- Borrowers must show a 25 percent decline in revenue in the first, second, or third quarter in 2020 as compared to the same quarter in 2019 (if the loan application is after December 31, 2020, then a fourth quarter comparison may be used as well)
The proposal in discussion 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
Details include:
- Eligibility would be limited to small businesses with 300 or fewer employees that have sustained a 30% 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.
- Set-asides are included to ensure that smaller borrowers and underserved communities get the help they need, such as: for small businesses with 10 or fewer employees; for loans made by small community lenders, including Community Development Financial Institutions (CDFIs), credit unions, small community banks, Minority Depository Institutions (MDIs), and farm service lenders; and for the Minority Business Development Agency
- Funding for independent live venue operators affected by COVID-19 stay-at-home orders
PPP forgiveness
Forgiveness is one of the big draws of a PPP loan. Even in the next round, businesses would still need to meet the 60/40 cost allocation for payroll and nonpayroll costs to be eligible to receive full forgiveness.
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.
As in the first round, borrowers in this next round would be allowed to select a loan forgiveness covered period between eight and 24 weeks during which to spend loan proceeds on forgivable costs.
SBA 7(a) costs
The new legislation also outlines how this bill will affect SBA 7(a) funding:
- Extension of Section 1112 of the CARES Act, which provides payment of principal, interest, and associated fees on qualifying SBA 7(a), 504 and microloans.
- Funding for SBA loan products to increase guarantees on SBA 7(a) loans and reduce fees on 7(a) and 504 loans, provide loan subsidies for 7(a) loans; and provide Economic Injury Disaster Loan grant advances.
New simplified forgiveness application
The SBA issued a simplified forgiveness application in October 2020 for loans of $50,000 or less. Details can be found on the SmartBiz Small Business Blog here: New Paycheck Protection Program Loan Forgiveness and Repayment Rules.
The new forgiveness application for forgiveness of loans up to $150,000. (However, it also strengthens SBA’s ability to audit and review forgiven loans, with $50 million appropriated for that purpose.)
Borrowers that also received SBA Economic Injury Disaster Loan Advances would no longer need to subtract such advances from their PPP forgiveness.
Additional updates
According to the current proposal, this next PPP round would also:
- [Provide] Farm Credit System Institutions with greater certainty and equity in PPP lending participation”
- Define “seasonal employer”
- Establish “a procedure in the bankruptcy process if the Administrator determines certain companies in Chapter 11 are eligible for PPP loans”
- Establish a $15 billion grant program to support “shuttered live venues and theaters that have experienced significant revenue losses”
Steps to prepare for the next round of PPP funding
As you prepare for the next stimulus package, consider gathering the requested documents and submitting swiftly. PPP funds are not endless and are expected to run out rapidly.
Here are documents that may be needed to establish eligibility. Keep them organized and ready to upload.
Gather forms and records
- Payroll processor records (Details can be found here: Paycheck Protection Program Loan Payroll Calculation: Your Payroll Processor Can Help)
- Payroll tax filings
- Form 1099-MISC
- Income and expenses from sole proprietorship
- Any bank records that demonstrate qualifying payroll amount
Digitize documents
Uploading documents is faster, more reliable, and easier to track. Cloud software can help.
Consult a financial professional
It’s a best practice to work with your bookkeeper, or ideally a small business accountant, to help determine loan amount needed, gather documents, and plan to meet forgiveness requirements by the deadline (TBD).
Choose a PPP lender
Although going to your local bank is a good idea, you can 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.
You can also work with a FinTech company, like SmartBiz Loans®, to help you apply for PPP funding. Although the next round PPP application is not available yet, you can sign up to download your PPP Prep List and get alerted when you can start the PPP application through SmartBiz.
SmartBiz Loans has successfully guided business owners through the first round of the PPP program and is in an excellent position to help with this next round. Our streamlined application will help you calculate the allowable loan amount for based on your payroll. Our seasoned professionals are on hand to help guide you through the PPP loan application process with participating banks on our platform.
