Who is eligible for the PPP Round 2?

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Small businesses and many independent contractors will be eligible for the new PPP, even if you received funds in the first round of PPP.  

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Eligible small businesses include:

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• Small businesses, nonprofit organizations, veterans organizations, Tribal business concerns, and small agricultural cooperatives that meet the SBA guidelines. 

• Sole proprietors, self employed individuals or independent contractors.

• Certain news organizations, destination marketing organizations, housing cooperatives, and 501(c)(6) nonprofits may now also be eligible. 

This round of assistance targets small businesses impacted by COVID-19. As a result, applicants who qualify generally must also meet the following criteria:

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1. The business may not have more than 300 employees and

2. The business must have at least a 25% reduction in revenues in at least one quarter in 2020 when compared to previous quarters 

Any business that got a Round 1 PPP loan must have used, or plan to use, their full PPP loan disbursed.

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Some businesses are ineligible, including businesses normally not eligible for SBA loans, businesses where the primary activity is lobbying, and businesses with at least 20% ownership by China. (Note the CARES Act did make an exception for certain non-profits and agricultural cooperatives, for example, which are not normally eligible for SBA 7(a) loans.)  Publicly traded companies are not eligible to receive the new PPP loans.

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How is the 25% reduction in revenues calculated?

Business owners will compare gross receipts of the business before expenses are subtracted. They will compare those for any quarter in 2020 to the same quarter in 2019 to determine if revenues decreased by at least 25%. 

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Note that in all the examples in this section only loan applicants that apply for a loan after January 1, 2021 may use the fourth quarter for comparison purposes. Since it’s unlikely many affected businesses will apply before January 1, 2021 this should not affect many applicants.

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What if you weren’t in business all of 2019? Stick with us. This sounds more complicated than really is: 

If you were not in business during the first or second quarter of 2019 but were in business in the third and fourth quarter of 2019, then you may compare any quarter in 2020 with the third or fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%. 

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If you were not in business during the first or second quarter or third quarter of 2019 but were in business in the fourth quarter of 2019, then you may compare any quarter in 2020 with the fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%. 

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A business must have been in business by Feb. 15, 2020 to apply. A business that wasn’t in business in 2019 but was in business before February 15, 2020 will compare gross receipts from the second, third or fourth quarter of 2020 to that first quarter of 2020. 

Reminder the first quarter runs January 1 – March 31, the second quarter runs from April 1 – June 30, the third quarter runs from July 1- Sept 30 and the fourth quarter runs from October 1 – December 31st. 

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How much financing can I get with PPP Round 2? 

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The maximum loan amount is $2 million (down from $10 million in the CARES Act). In all the examples below, the loan amount caps out at $2 million. An eligible entity may receive only one second draw loan.

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As before, a business may qualify for up to 2.5 times average monthly payroll costs.  (To get the average gross monthly payroll cost you’ll total each month’s payroll costs and divide by 12.)

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You can arrive at this figure either by one of two methods— your choice (except businesses with a NAICS code beginning in 72 – see below): 

• Multiply average gross monthly payroll cost for the 1-year period before the date the loan is made by 2.5 or

• Multiply average gross monthly payroll cost for 2019 by 2.5.

New businesses (that were not in business for the 1-year period preceding February 15, 2020) will use a slightly different formula to arrive at the average monthly payroll costs. They will divide the payroll costs paid or incurred by the date they apply by the number of months in which those costs were incurred and multiply the result by 2.5. Again, new businesses must have been in business by February 15, 2020 in order to be eligible. 

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Seasonal businesses may apply based on the average monthly payroll costs for any 12-week period between February 15, 2019 and February 15, 2020. 

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Businesses with a NAICS code beginning in 72 (generally hospitality businesses) may receive up to 3.5 times average monthly payroll cost using their choice of these two methods: 

• Multiply average gross monthly payroll cost for the 1-year period before the loan is made by 2.5 or

• Multiply average gross monthly payroll cost for 2019 by 2.5.

There is a separate calculation for farmers and ranchers. 

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Can I reapply for a loan if I returned my first one?

You may. If you returned all or part of your PPP loan, you may apply for an “amount equal to the difference between the amount retained and the maximum amount applicable.” Or, if you did not accept the full amount you may request a modification to allow you to borrow the full amount for which your business is eligible.

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Is there loan forgiveness for the new PPP loans?

Yes! As with the first round of PPP, these loans may be entirely forgiven if spent for the proper purposes (primarily payroll) during the proper time period. Currently there are three PPP loan forgiveness applications:

• Form 3508

• Form 3508EZ

• Form 3508S

Borrowers can continue to use those forms for PPP loans they received earlier in 2020, unless and until new applications are released. However, for the new PPP 2.0 loans, we expect Treasury and the SBA to release new loan forgiveness applications. 

In addition, there will now be a simplified (but not automatic) forgiveness for loans of $150,000 or less. 

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How does the simplified PPP forgiveness work? 

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act creates simplified forgiveness for loans of $150,000 or less. The SBA Administrator will have 24 days after the law is enacted to release a new one-page forgiveness application for loans of $150,000 or less— which includes all PPP loans, both under the first round and the new ones.

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It will require the borrower to:

• Describe the number of employees retained due to the PPP loan,

• The estimated amount of the loan proceeds spent on payroll, and

• The total amount of the loan

The borrower will have to certify they have complied with the requirements of the loan and retain records to prove compliance. (Employment related records must be retained for four years while others must be retained for three years.)

Again, it’s worth noting that even though the form will be simplified, funds must still be spent properly to qualify for forgiveness and the SBA may audit these applications. That means it will continue to be very important to keep documentation of how you spent these funds in case your loan is audited. 

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We recommend considering opening a separate bank account to deposit your PPP funds and track expenditures.

How can You use the funding? 

Similar to the first round of PPP, this program is primarily intended to keep employees (including the business owner or independent contractor) on payroll and to pay other specific expenses.

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To obtain full forgiveness, borrowers will need to spend at least 60% of loan proceeds funding on payroll (compensation of up to $100,000 per employee plus payment of certain group benefits which are now defined to also include group life, disability, vision, or dental insurance). 

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Borrowers may spend up to 40% on other qualified expenses, during the covered period. This list of eligible non-payroll expenses has been expanded to include: 

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• Rent 

• Mortgage interest

• Utilities

• Covered operations expenditure

• Covered property damage cost

• Covered supplier cost

• Covered worker protection expenditure

Covered operations expenditures means “payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses”

Covered property damage cost means “a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation;”

Covered supplier cost means “an expenditure made by an entity to a supplier of goods  for the supply of goods that:

• Are essential to the operations of the entity at the time at which the expenditure is made; and 

• is made pursuant to a contract, order, or purchase order— ‘‘(i) in effect at any time before the covered period with respect to the applicable covered loan; or ‘(ii) with respect to perishable goods, in effect before or at any time during the covered period”

Covered worker protection expenditure means “an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et 8 seq.) with respect to the Coronavirus Disease 2019 (COVID–19) expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19; may include the purchase, maintenance, or renovation of assets that create or expand

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• a drive-through window facility;  

• an indoor, outdoor, or combined air or air pressure ventilation or filtration system;

• a physical barrier such as a sneeze guard;

• an expansion of additional indoor, outdoor, or combined business space; 

• an onsite or offsite health screening capability; or 

• other assets relating to the compliance with the requirements or guidance described in subparagraph (A) as determined by the (SBA) Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; the purchase of— 

  • covered materials described in section 328.103(a) of title 44, Code 16 of Federal Regulations, or any successor regulation;

  • particulate filtering face piece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or 

  • other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of 4 Labor; and does not include residential real property or intangible property;’’

Note these approved expenditures apply to any PPP loan except those already forgiven. 

The “covered period” is the specific period of time in which you must spend the funds. It starts when the PPP loan is originated. (That’s the date the funds are deposited to your bank account.) You can choose a covered period of 8 or 24 weeks to spend the funds. 

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What is a seasonal employer?

According to this bill, a seasonal employer is one that: 

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• “Does not operate for more than 7 months in any calendar year; or 

• During the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of that year’’. 

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Will an EIDL Grant be subtracted from my PPP for loan forgiveness? 

No. The legislation repeals the requirement that an EIDL grant (advance) be deducted for purposes of PPP forgiveness. In addition, the SBA Administrator is required within 15 days of when this legislation is enacted to “ensure equal treatment” for borrowers whose loans have already been forgiven and who had their grants subtracted from the forgiven amount.

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What else do I need to know? 

There are a few other details that are helpful to understand. As with the CARES Act: 

• No credit check is required.

• There is no personal guarantee. 

• Normal SBA collateral requirements are waived.

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What other help is available for my small business?

In addition to the new PPP loans, the Act authorizes the following relief:

• Another $20 billion in new EIDL grants.

• Pandemic unemployment benefits for the self-employed and independent contractors will be extended. 

• Payment relief for eligible SBA loans will be extended. That means the SBA will cover the payment on eligible SBA loans—including interest, for up to a total of $9000 per payment—for the next 3-8 months, depending on the borrower’s industry code and the type of loan. 

• $12 billion in funding will be available for Community Development Institutions and Minority Development Institutions which will help minority and low-income small business owners through a new Neighborhood Capital Investment program. 

• Live venues, independent movie theaters, and cultural institutions may be eligible for $15 billion in dedicated grants.

We will continue to delve into this legislation and provide additional insights by updating this article. 

PPP Disclosure: Guidance Funding is committed to helping small businesses navigate the new Small Business Administration (SBA) Paycheck Protection Program. The program provides small businesses with funds to pay up to 24 weeks of payroll costs, including benefits. Funds can also be used to pay interest on mortgages, rent and costs for utilities, as more fully explained in SBA materials. This program is provided through Guidance Funding , as well as other financial institutions, but it is an SBA program and, accordingly, the requirements and availability of loans under the program are primarily driven by the SBA. Any loan made under the SBA’s Paycheck Protection Program must be submitted to and approved by the SBA. There is limited funding available and so all applications submitted will not be approved and funded by the SBA. Guidance Funding is participating in the Paycheck Protection Program to help businesses impacted by the economic impact from COVID 19. However Guidance Funding anticipates high volume and there may be processing delays and system failures along with other issues that interfere Guidance Funding taking your application or submission of any application to SBA.  Guidance Funding does not represent or guarantee that it will take your application or submit any applications taken before SBA funding is no longer available or at all. By using Guidance Funding  to seek a Paycheck Protection Program loan, you agree that Guidance Funding  is not responsible or liable to you (i) if your application is not taken by  Guidance Funding  or any application is not submitted to the SBA until after SBA stops approving applications, for any reason or (ii) if your inquiry or any application is not processed. You also forever release and waive any claims against Guidance Funding concerning failure to obtain a loan. This release and waiver applies to but is not limited to any claims concerning Guidance Funding  (i) pace, manner or systems for processing or prioritizing your inquiry or any resulting applications, or (ii) representations by Guidance Funding regarding the application process, the Paycheck Protection Program, or availability of funding. This release and waiver supersedes any prior communication, understanding or agreement on the issues set forth herein. Please be prepared to provide your average monthly payroll as defined by the SBA and upload proof of payroll information, e.g., 2019 W-3, 2019 IRS Quarterly 940, 941 or 944 payroll tax reports, 2019 Personal Tax Returns and Business Tax Returns. As a Guidance Funding  client, you can apply using this digital application, only if you meet these criteria: Your business is not a governmental entity. You’re authorized to borrow on behalf of the business. Your business hasn’t applied for a loan under the Paycheck Protection Program with Guidance Funding or from another financial institution. The minimum loan amount is $1,000, and the maximum amount is determined by your average monthly payroll and cannot exceed $10 million. The maximum amount may be reduced based on loans to your affiliated companies. You won’t have to make payments on the loan for 6 months from the date of the Note. The loan may be eligible for forgiveness, but only amounts meeting SBA criteria: Forgiveness isn’t automatic. You may request forgiveness of some or all of the principal balance of the loan. Forgiveness is only available if you use the funds for certain purposes and if requested within the timelines established by the SBA. If you request forgiveness, you must provide documentation, and must certify that the loan funds were used for SBA qualifying purposes. The amount forgiven may be subject to certain reductions in certain circumstances; for example, if you have certain reductions in number of employees or employee compensation. The borrower will be responsible under the loan for any amounts not forgiven, and will become payable with monthly payments of principal and interest. The SBA may limit the time frame by which you’ll need to ask for forgiveness.