March 31st 2021 is the last day to apply for a first or second-round PPP loan. While the rules are a bit unclear as to whether a business seeing declines in one quarter but positive in subsequent quarters still qualifies for loan forgiveness eligibility, there are a number of areas to consider as to whether your business should apply for the second-round of PPP. (Related: Financial Assistance To Small Businesses In Response To COVID-19)
Applying for a first-time PPP loan?
If you didn’t get funds for the first PPP round you can apply for a first-time loan. Loans are capped at $2 million (down from $10 million first round) for businesses with up to 500 employees. If you were rejected for the first round, be sure to go back to the lender where you applied and understand what may have prevented you from being approved so you can be sure to address this in your second-round application.
Are you eligible for a second PPP loan?
Businesses that missed out on the PPP program last year and those seeking a second round of assistance can apply. When applying for a second PPP loan, the business:
- Must plan to or already spent the full amount of the first PPP loan on qualifying expenses
- Had a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
- Has 300 employees or less for second round (down from 500 employees)
- Asked for less than $2 million (PPP loan amounts based on an applicant’s payroll at 2.5 times payroll costs; capped at $2 million).
Clarification this time around
PPP loan forgiveness and eligibility has gone through many changes and corrections since last summer. PPP loan forgiveness terms state that at least 60% of the funds must be used for eligible payroll costs and must be used over a span of 24 weeks. Additional qualifying expenses are eligible for full or partial loan forgiveness such as operations, property damage, supplier costs and worker protection. The second round has also clarified whether businesses can claim a tax deduction on qualifying expenses paid for with PPP funds.
Still not sure if you should apply?
Many businesses were not able to get in the first time around and the process was indeed overwhelming. However, you may wish to reconsider. Some loans of $150,000 or less may be automatically forgiven based on a self-certification from the business owner that they meet certain criteria. Further, if your business doesn’t qualify for loan forgiveness, the five year period to pay the loan back at a low interest rate of 1% is generous. Also, you do not have to apply for PPP through the same institution where you do your banking. You can find several online resources on the SBA website.
Get your books in order with your tax professional
This round of PPP loans is more comprehensive about what information is needed for your application. You should have your tax return materials on file, payroll and employment records and documentation noting rent and utilities payments. It’s not an easy process so it’s best to work with your tax professionals to help you with this as they’re well versed in the loan process.