For more up-to-date information on PPP lending, the U.S. Chamber of Commerce has released an updated guide to COVID-19 emergency loans for small businesses, detailing changes to PPP taxes and loans since the December 2020 law went into effect. It is also important to note that PPP loans cannot be used to pay corporate tax. The second round of funding under the PPP includes four categories of additional expenses covered: Pardon applications for loans under $150,000: The forgiveness application for loans under $150,000 should be simplified into a one-page attestation that includes a description of the number of employees the eligible recipient was able to retain as a result of the loan. the total estimated amount of the loan spent on labour costs, and the total amount of the loan. However, borrowers should be aware that even though the pardon application will be simplified, all the rules will still apply. Instead of going through the process to show how borrowers arrived at certain numbers, the simplified application simply asks borrowers to self-certify. Given the liability of a false certificate to the SBA, we recommend that all borrowers submitting this simplified application verify their responses by completing at least the long application draft to ensure that the certificates on the simplified form are true and correct. In addition, all borrowers must retain all employment documents relevant to the pardon application for a period of four years after the date of submission, as well as all other documents related to the PPP and the pardon application, for a period of three years after the pardon application is submitted. The Economic Assistance Act allows for a second round of PPP loans (called „second drawing loans“) to borrowers who have already received a PPP loan. The second drawing loan program, which ends March 31, 2021, includes stricter eligibility criteria and a lower credit limit, but retains many of the original terms and conditions of the PPP program. Both former PPP loan recipients and new applicants are eligible for a second PPP loan.
The second round of the Paycheque Protection Program (RAP) opened to eligible borrowers on January 19, 2021. The Consolidated Appropriation Act, 2021 includes a second round of funding for the PPP to help small businesses that continue to be financially impacted by the pandemic. With few exceptions, eligibility for Second Draw PPP loans is subject to the same affiliation rules (and waivers) as First Draw PPP loans (see question 7 of our article What You Should Know About the Paycheck Protection Program, Round Two – First Draw PPP Loans). The following companies are exempt from the affiliation rules: [iii] The term „employees“ used to determine the number of employees a business employs includes individuals who are employed on a full-time, part-time or other basis. In addition, accommodation and food services companies can get a loan if their multi-site business does not employ more than 500 people per physical location. Businesses that meet the definition of an SBA „small business“ are eligible for a loan, even if they had more than 500 employees. Size standards are usually based on the number of employees of a company and its subsidiaries. This article does not document complex affiliation rules. The IFR provides companies that did not operate throughout 2019 with specific rules for calculating the revenue reduction to determine eligibility for the second draw.
Second Draw PPP loans are subject to the same general rules and conditions as First Draw loans, with a few exceptions. IFR-202-0002 describes these rules, which are summarized below. The IFR confirms that the following rules apply to second drawing loans:[vi] Slightly different rules apply to the self-employed, farmers and other businesses. These differences are explained below. Square received more than 140,000 loan applications in the first round of the PPP and facilitated more than $820 million in PPP loans to 76,000 small businesses. The average loan amount for a business was less than $11,000. This means that, like the first PPP loan, the second round of PPP loans is fully forgivable if you follow the forgiveness guidelines. At least 60% of the loan must be spent on payroll and the remainder on other eligible expenses. [ii] The rules clarify a number of eligibility requirements for groups such as media outlets, hospitals, electricity cooperatives and legal gaming companies. These rules are not described in detail in this article. It is important to note that in the first round of PPPs, businesses with 500 or fewer employees were eligible. To get all or part of your second PPP loan, you need to spend the loan money on forgivable expenses.
The first PPP cycle included expenses such as utilities, rent, payroll, employer-funded health insurance, and other eligible expenses, which are also covered by this second round. Maximum loan amount: Borrowers of a Second Draw PPP loan have the option to calculate the maximum loan amount by multiplying the borrower`s average total monthly payroll by 2.5 times (a) the one-year period preceding the loan issue date, or (b) the 2019 calendar year. The maximum loan amount was reduced from $10 million to $2 million in the first round. As in the first round, seasonal employers calculate their maximum loan amount differently. Note that the $2 million limit does not apply to first-time borrowers. That cap remains at $10 million. Limited totals for a single group of companies: In the first round, companies that were part of a single group of companies were limited to PPP loans totalling $20 million. The SBA has made a corresponding adjustment for second-run PPP loans, where enterprises that are part of a single enterprise group are limited to second-run PPP loans not exceeding $4 million. In the first round, the SBA stated that „companies are part of a single group of companies if they are majority-owned directly or indirectly by a common parent company“. Borrowers should be aware that applications for second drawdown loans include all of the certifications set out in the first round and, in particular, applications for second drawdown loans do not waive or modify the necessity requirement, which requires all borrowers to confirm that „significant economic uncertainty requires that this loan application support the applicant`s day-to-day operations“ as of the date, where the PPP loan application is submitted. All borrowers should review their businesses to ensure they can certify that the loan is necessary.
If you apply for a second round, you may be eligible for what`s called a second draw, where the lowest amount is: $2 million, or 2.5 times your average monthly salary cost in 2019, 2020, or the year before your PPP loan. If your business code starts at 72, that`s 3.5 times your average monthly labor costs. This additional PPP cycle also more clearly defines seasonal transactions for the calculation of the PPP loan amount. Seasonal businesses that are not operating for more than seven months per year or that have earned less than one-third of their revenues in a six-month period of the previous year may have their PPP loan calculated for any 12-week period in 2019 or 2020. Editor`s note: This article was updated in November 2021 with updated information on PPP credit exemption and tax implications. The second round of PPP loans ended on May 31, 2021. Businesses with 300 or fewer employees that experienced a 25% drop in revenue in a quarter from 2019 to 2020 are eligible for the second round of PPPs. This means a reduction in gross revenue of 25% or more than one quarter in 2020 compared to the same quarter in 2019 or 2020 compared to 2019. Unlike the first round, new entity types are now eligible, including: To apply for the second round, contact your bank or lender. If you`re a Square seller, learn more about how to apply through Square Loans. The application deadline was May 31, 2021.
Loans for the second round of PPP remittances can reach $2 million (up from a maximum of $10 million in the first round), and during the data remittance process, you can choose a covered period between eight and 24 weeks. At least 60% of the PPP loan must be used for labor costs to be eligible for the full rebate, just like the first round of PPP. If borrowers do not request a rebate within 10 months of the last day of the covered period, PPP loan payments will no longer be deferred. Be sure to contact your lender to get the right form. Borrowers should also be aware that eligibility for second-run PPP loans is subject to the same affiliation rules (and waivers) as the first round of PPP loans (these exemptions apply to businesses with NAICS codes starting at 72, eligible news organizations with more than one physical location, and any not-for-profit organization with NAICS code that begins with 5151). „Labour cost“ has the same definition for second drawing loans as for first drawing loans (see above). Special calculation rules are provided for seasonal workers and new businesses[xiv] Companies in the accommodation or food services sector are entitled to a Second Draw loan equal to 3.5 times their average monthly wage cost. As with the previous cycle, this cycle also includes: Since the Economic Assistance Act allows borrowers to choose their own loan forgiveness period (between 8 and 24 weeks), the rules eliminate the alternative coverage period that was originally planned for labour costs.
