January 12, 2021

PPP Loan Second Draw: Quick Overview

Who can get a second PPP Loan?

You must pass all of the 6 steps below
  1. Got the original PPP Loan in 2020
  2. Still in business (have not permanently shut down)
  3. Have used or will use all of the funds from the original PPP Loan (you are not required to have applied for forgiveness)
  4. Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant
  5. 300 employees or less
  6. Experienced a decrease in ”Gross Receipts” of at least 25% when comparing 2020 to 2019 (more details below).
For most small businesses, everything is the same as before, except for #6.
 
”Gross Receipts” basically means Income, Revenue, Sales….whatever you call it. 
 
Don’t overthink it.  
 
If you report it on your tax return as income, then that’s a gross receipt.  If you report income on your tax return using the Accrual basis, then that’s what you should use for purposes of this test.  Likewise, if you use the Cash basis for taxes, use the Cash basis for this test.
 
PPP Round 1 proceeds should not be included in gross receipts.
 
First, perform the test on all of 2020 vs. all of 2019.  If 2020 gross receipts are 25% less than 2019, you qualify. 
 
If you fail that first test, do a little more work and test each quarter of 2020 vs. 2019.  A “quarter” is a calendar quarter (ex. 2nd quarter is Apr-June).  If any, one quarter shows a 25% or more decrease in 2020 vs 2019; stop…you’re good!  Even if other quarters show an increase in gross receipts, you still qualify.

When can you apply for the second PPP Loan?

Short answer:  Now!
 
It seems that the SBA will start accepting applications for most later this week or early next week.  Early application priveledges were given to some smaller banks.
 
You should contact your banker now to see if they are accepting applications.  I have seen some bankers (even at big banks) telling business owners to go ahead and send everything in so they can get it ready to submit with the SBA when the portal is open to them.

How do you apply?

This is the best part!  In most cases, if you apply at the same bank, you don’t have to submit any documentation other than filling out the few lines on the 3-page application.  Why?  Because it’s computed the same way that the original PPP Loan was, and the bank still has all that documentation.
 
You do have the option to use 2020 payroll costs instead of 2019.  However, most people that had a 25% revenue loss in 2020 would not have increased payroll from 2019.  If you are in the rare position to have higher payroll in 2020, you will benefit from using 2020 payroll costs and be required to submit new documentation with your application.
 
One little thing: For loan amounts over $150,000, you have to submit documentation showing your gross receipts reduction.  No big deal!  You’ve already computed it or you wouldn’t still be reading this.  Just submit your relevant 2020 financial statement and 2019 financial statement.

Anything else you should be aware of?

  • It is 100% forgivable, just like PPP round 1
  • Forgiveness is not taxable in any way (just like round 1 was finally deemed)
  • The SBA believes that money will not run out quickly.  It is sure to be stretched out farther than the first traunch of round 1 which lasted only a few weeks.  The restrictions are much tighter this time.  But, I would not be complacent, as you never know….

Bottom Line

  • Check to see if you qualify for the reduction of gross receipts
  • If so, move fast to contact your banker
  • The loan application should be much easier this time, but forgiveness could be much more complex
    • Why?  Because now you are eligible to get the PPP loan and the Employee Retention Tax Credit, but you cannot use the same payroll costs for both.  So, if you want to maximize the very impactful benefits available to you…strategy from a financial professional is highly recommended.
If you have any questions or want help getting the most benefit available to you, please contact Wayfinder CPA.
 
Chris Naquin, CPA
Wayfinder CPA

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