The U.S. Small Business Administration (SBA) and Treasury issued guidance on Wednesday, January 6th for the new round of Paycheck Protection Program (PPP) loans available to small business owners impacted by the coronavirus pandemic.
There are significant differences in this next round of funding, outlined in the interim final rules. Below are key points to keep in mind when determining if a 1st or 2nd PPP loan is right for your business.
Two interim final rules (IFRs) were highlighted:
Following are the qualifications that must be met to participate in the Paycheck Protection Program:
The legislation allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
This new legislation prohibits an entity that has permanently closed from receiving a second PPP Loan because the Small Business Act describes existing businesses only. The Administrator, in consultation with the Secretary, has determined this provision is also necessary to maintain program integrity, prevent abuse, and preserve PPP Loan funds for businesses still in operation.
New round of PPP Loans are generally subject to the same conditions and requirements as the previous program. These include, but are not limited to the following terms:
Costs eligible for loan forgiveness in this round of the PPP, as with the last round, include payroll, rent, covered mortgage interest, and utilities. The new round makes the following potentially forgivable:
Here are details about the fund amount available to qualified businesses:
The new COVID-19 relief bill guidelines include:
In general, the Economic Aid Act provides that the maximum loan amount for a second PPP Loan is equal to the lesser of two and half months of the borrower’s average monthly payroll costs or $2 million.
The new Economic Aid Act adjusted the methodology for calculating a borrower’s payroll costs and provides that the relevant time period for calculating a borrower’s payroll costs for a second PPP Loan is either the twelve-month period prior to when the loan is made or calendar year 2019.
The rules state that “calendar year 2020” refers to “the twelve-month period prior to when the loan is made.” Calculating payroll costs based on calendar year 2020 rather than the twelve months preceding the date the loan is made will simplify the calculations and
documentation requirements for borrowers because payroll records are more commonly created and retained on a calendar-year basis.
Allowing borrowers to calculate payroll costs based on calendar year 2020 is also not expected to result in a significant difference in payroll costs compared to the twelve months preceding the date the loan is made because all second PPP Loans will be made in the first quarter of 2021.
However, PPP Loan borrowers who are not self-employed (including sole proprietorships and independent contractors) are also permitted to use the precise 1-year period before the date on which the loan is made to calculate payroll costs if they choose not to use 2019 or 2020 to calculate payroll costs.
The documentation required to substantiate an applicant’s payroll cost calculations is generally the same as documentation required for the first PPP Loan. However, no additional documentation to substantiate payroll costs will be required if the applicant used calendar year 2019 figures to determine its first PPP Loan amount.
Documentation may also include the following:
Note that different documentation requirements may differ based on your lender.
The new round of the Paycheck Protection Program, administered by the SBA, makes continued financial support available to eligible small businesses to help keep employees and stay open safely during the COVID-19 pandemic.
SmartBiz Loans is here to help you apply for this new round of PPP funding. The banks in the SmartBiz network are processing applications and ready to help you get the funding you need in 2021.
Determine if a PPP loan is right for you or start a streamlined application on the SmartBiz Loans website.
The availability of PPP loans remains subject to SBA guidance and other factors, 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 above is for educational purposes only. Please consult the SBA’s website for actual rules and the most current guidance.