On December 21, 2020, Congress passed the Consolidated Appropriations Act (Act), 2021, that included an update to the Paycheck Protection Program (PPP), or what many are calling the PPP 2.0 (PPP2). An additional $284 billion in PPP loans is now available through March 31, 2021 (or whenever the appropriated funds run out) and the process works similarly to the first round. The industry consensus at this time is that SBA and Treasury Department believe the current $284 billion round of funding will be more than enough. However, we recommend submitting an application sooner rather than later.
This article intends to summarize the key information to help apply for a PPP2. Each situation is different, and the Mueller COVID-19 response team is available to assist with any questions.
Before diving in, the Act also made updates to the Employee Retention Credit (ERC). While the CARES Act did not allow organizations to take both a PPP and the Employee Retention Credit, the new Act makes both available for 2020 for certain organizations (a future article will discuss the 2021 credit). To qualify, the organization must have experienced either a government ordered shut down or a 50% decrease in revenues during one quarter of 2020 compared to the same quarter in 2019. If you qualify for this credit, we recommend to hold off on any forgiveness applications for PPP1 until more guidance comes out on the updated ERC and to talk to your business advisor.
- First-time borrowers that meet the eligibility criteria of the original Paycheck Protection Program (as amended by the PPP Flexibility Act in June 2020), can take a first-time PPP.
- New borrowers can use 2019 or 2020 payroll to calculate their maximum loan amount. The formula for determining the amount of the loan is the same as it was under the original PPP, which is 2.5X average monthly payroll.
- PPP borrowers with NAICS code starting with 72 can receive up to 3.5 times their average monthly payroll costs on second-draw loans.
- Sec. 501(c)(6) businesses with 300 or fewer employees and do not receive more than 15% of receipts from lobbying are able to apply.
- For 2nd Draw PPP loans there are some new requirements for eligibility:
- Must have 300 or fewer employees
- Must experience a reduction in gross receipts of 25% or more in any quarter in 2020 compared to the same quarter in 2019.
- Note that the test is performed at the group level and all affiliations must be combined to determine eligibility for this test.
- The IFR generally defines gross receipts to include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
- Documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements.
- For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness.
- Must have used the full amount of the first loan on allowable expenses. This does not mean they have to have filed for forgiveness already to be eligible for a 2nd draw. They just need to have enough allowable expenses to cover the first PPP draw.
- The maximum loan amount is now capped at $2 million.
- The law expanded the types of expenses that are eligible for forgiveness to include covered operations expenditures, covered property damage cost, covered supplier costs, covered worker protection expenditures. The same rule that payroll costs must make up at least 60 percent of forgivable expenses still applies.
A few minor points we see that will help:
- The reduction of the loan forgiveness amount by the amount of any Economic Injury Disaster Loan (EIDL) advance of up to $10,000 is repealed.
- With regard to payroll costs, benefit costs have been expanded to include employer-paid group life, disability, vision and dental insurance in addition to employer-paid health and retirement benefits.
- There are special rules for seasonal employers and entities assigned a NAICS code beginning with 72.
If you are sticking with the same lender, the process should be smooth. The only additional support needed for 2nd draw loans is documentation evidencing a reduction of 25% of gross receipts either for the entire year of 2020 compared to 2019 or from any quarter in 2020 compared to the same quarter in 2019.
If you are using a different bank for PPP2 or did not participate in PPP1, you will need to complete an initial application and provide all of the support to substantiate their 2.5 times payroll cost amount. It will be more efficient to run 2nd draws through the same bank as you did for PPP1 as the only support showing you met a 25% reduction in gross receipts requirement will be needed.
If you find your bank not being cooperative or you run into any issues, please reach out to our COVID-19 Response Team to connect with a lender.
If you have any questions, please reach out to our COVID-19 Response Team leaders below or your Mueller representative.
For a more detailed article, here is a link to the Journal of Accountancy on the specifics of the updated PPP program.
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