This page will be updated as needed for our clients to see answers to commonly asked questions by other clients as we all go through this process together. This page is NOT intended to be all-inclusive information about the respective resources available to you. You ultimately make the decision of your company and its finances and what course of action you and your company take.
In addition, as this process is ongoing subsequent amendments and updates may have occurred that have NOT been updated here.
Additional blog posts about various COVID-19-related topics are also available.
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Last updated 1/12/2021
PPP Round 2 has begun!
If you received a First Draw PPP Loan, you may be eligible for a Second Draw PPP Loan. The following eligibility rules are in effect for the Second PPP round (or “PPP2”):
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
The PPP2 Draw Loan will still be 2.5x average monthly 2019 or 2020 payroll costs, up to $2 million. For businesses in the Accommodation and Food Services industry (you must have a NAICS code beginning with 72 on your tax return), the maximum loan is 3.5x your monthly payroll, up to $2 million.
Since you have already borrowed the first time through your lender; it is suggested at this point, to apply with the same lender as your first PPP. However, you may use any SBA 7(a) lender or approved federal institution that is participating in PPP.
Note – you do not need to have your first PPP forgiven as a function of applying for PPP2.
Until forgiven, any PPP2 loan is subject to 1% interest and matures in 5 years; however, the SBA fills forgive PPP2 if all employee’s retention criteria are met and the funds are used for eligible expenses.
Loan forgiveness: As a reminder, you MUST apply for forgiveness from your lender for both the PPP and PPP2 advances, it is NOT automatic forgiveness.
The SBA has set aside specific funds and early applications for Minority, Underserved, Veteran, and Women-Owned Business Concerns.
Gross receipts as noted in the SBA PPP2 documents reference the following:
In determining whether the Applicant experienced at least a 25% reduction in gross receipts, for loans above $150,000, the Applicant must identify the 2020 quarter meeting this requirement, identify the reference quarter, and state the gross receipts amounts for both quarters, as well as provide supporting documentation. For loans of $150,000 and below, these fields are not required and the Applicant only must certify that the Applicant has met the 25% gross receipts reduction at the time of application; however, upon or before seeking loan forgiveness (or upon SBA request) the Applicant must provide documentation that identifies the 2020 quarter meeting this requirement, identifies the reference quarter, states the gross receipts amounts for both quarters, and supports the amounts provided. For all loans, the appropriate reference quarter depends on how long the Applicant has been in operation:
- For all entities other than those satisfying the conditions set forth below, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the same quarter of 2019. Alternatively, Applicants may compare annual gross receipts in 2020 with annual gross receipts in2019; Applicants choosing to use annual gross receipts must enter “Annual” in the 2020 Quarter and Reference Quarter fields and, as required documentation, must submit copies of annual tax forms substantiating the annual gross receipts reduction.
- For entities not in business during the first and second quarters of 2019 but in operation during the third and fourth quarters of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than either the third or fourth quarters of 2019.
- For entities not in business during the first, second, and third quarters of 2019 but in operation during the fourth quarter of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25% lower than the fourth quarter of 2019.
- For entities not in business during 2019 but in operation on February 15, 2020, Applicants must demonstrate that gross receipts in the second, third, or fourth quarter of 2020 were at least 25% lower than the first quarter of 2020.
Gross receipts 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. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees; proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. Gross receipts of a borrower must be aggregated with gross receipts of its affiliates. For a nonprofit organization, veterans organization, nonprofit news organization, 501(c)(6) organization, and destination marketing organization, gross receipts have the meaning in section 6033 of the Internal Revenue Code of 1986.
Comment: Whereas a financial “quarter” is commonly thought of as January 1 – March 31, April 1 – June 30, October 1 – December 31, this PPP2 application does not refer to these specific quarters. An Applicant then in business for all of 2019, could therefore measure a quarter or any three consecutive months (i.e. February 1 – April 30, 2020) to the prior same period of 2019.
For PPP2 if an owner (20% or more of a business) or applicant is involved with any bankruptcy proceedings, delinquent/defaulted on SBA loans previously, incarcerated, or subject to any criminal investigations convicted of any felonies are not allowed to participate in this round of loans. Additional rules and specific circumstances are noted on the application.
As a reminder to applicants of PPP2, payments made to independent contractors DO NOT count towards your payroll computations, only GROSS WAGES paid to an employee will count.
PPP2 Q&A Questions and more information can be found on the SBA.gov website. Below is a specific question we recently recieved:
- Question: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
- Answer: In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
PPP Round 1
- PPP Loan Forgiveness Act – Extension: Changes to the previous rules, including loan repayment timeline, and delaying payroll tax payments. Read more…
- Small Business Administration PPP Loan Forgiveness Application
- An email message sent to clients regarding the first pass at the Paycheck Protection Program (“PPP”): PPP email message 4 2
- U.S. Treasury department updates interim final rules PPP–INTERIM FINAL RULE.
- Final PPP FAQs for Lenders and Borrowers 4-8-20_0
- IRS Allows Mid-Year Changes to Flexible Spending Accounts for Health Coverage and Dependent Care Elections. Learn more…
Q. What is PPP?
Paycheck Protection Program is the new SBA loan program whereby the SBA will loan funds to a small business. If used to pay employees for the next 2.5 months, the loan may be forgiven. As of 4/2/20, we are waiting on clarification on the definition of the SBA loan terms, repayment plans, loan base calculation, and how the loan may be forgiven.
Q. What is the definition of gross payroll?
We are awaiting a clear definition of this to include on your application?
“Aggregate Payroll Costs”, as defined in the SBA Interim Final Rule (and the technical term) in section f “Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on the compensation of employees; and for an independent contractor or sole proprietor.
Q. Can I include subcontractors or overhead in the loan calculation?
No. Your base loan computation is a function of your aggregate payroll costs, limited to $100,000 in compensation per employee, plus the cost of employee benefits the Company pays for of a group health care plan, retirement benefits, and any state and local taxes assessed on the compensation of employees.
Sub-contractors would have to apply for their own PPP. Sub-contractors are explicitly stated as they “do not count for purposes of a borrower’s PPP loan calculation”.
Q. Am I eligible?
If your business was in operation as of February 15, 2020, and either had employees for whom you paid salaries and payroll taxes or paid independent contractors on Form 1099-Misc. You have less than 500 employees and fall under the SBA definition of small business (in short, your net income after taxes was less than $5 million of the prior two-year average). You must be a U.S.-based business.
Q. How much can I borrow?
You can borrow up to 2.5 months’ worth of qualified payroll costs (see above update).
Q. Do I have to repay and if so, how much and for how long?
If you use the loan proceeds to cover 75% of payroll going forward (i.e. your current payroll must be then at a minimum of 75% of what your borrow case computation was computed at), the loan will be forgiven. It has not yet been disclosed how the loan will be forgiven, look for future updates. The remaining 25% of the loan may be used to cover rent and interest/principal on other loans you have outstanding; if the money is used for any other purpose, it will then have to be repaid. The term of the loan is for two years.
The loan will be deferred for six months following the date of the disbursement. The loan will accrue at 1% from the date disbursed until paid in full (or forgiven). You may also ask for a one-year deferment after the initial six-month window expires.
Q. Who do I get the PPP from?
You should begin the process with your business banker. They may have a separate website to apply for this, they may request you fill out certain payroll “templates” (Note: If you completed the one sent out as an example on Sunday, March 24 Apr. 10 a.m., your payroll information will be readily available for you to fill out). Make sure you clear the “cache” in your internet browser to make sure it is resetting so that an updated web page shows up on your browser! If you don’t know how to do this, search “how to clear my cache in browser xx” (where xx is the browser you currently are using).
Q. My bank is not ready, what do I do now?
Be patient, like you, your bank’s legal and IT team are reviewing requirements and updating systems to allow for the proper flow of funds. As of this update, 4/4/20, even the SBA portal is not yet up and available for processing. IT IS ADVISED, DO NOT APPLY BOTH ON YOUR BANK SITE AND SBA SITE FOR THE PPP LOAN. If your bank is not a participating SBA lender, you will have to wait for the SBA portal to open to apply, review your bank’s website for their specific details/comments.
Updated 4/9/20, after discussing with certain lenders, it may be wise to apply with multiple banks, in an effort to get the loan approved; however, you can ONLY have one PPP loan outstanding. If you are approved and to be funded under Bank A, when Bank B calls/emails you to discuss funding, you MUST terminate that loan application at Bank B.
Q. I am self-employed, do I qualify for the PPP?
On Friday, April 10, the SBA PPP program will begin for self-employed individuals (i.e. sole proprietors, and independent contractors). Your business had to be in operation on February 15, 2020.
Q. I am self-employed, how much can I qualify for?
Similar to other small businesses, your “monthly base” will be used. Review your schedule C on your 2019 tax return (or your information to prepare this schedule). Like other small businesses under the PPP program, self-employment net earnings are capped at the lesser of $100,000 or your self-employment earnings, annually, plus other wages you pay out to other employees via your sole-proprietor business. A reminder that self-employment net earnings are 92.35% of your Schedule C, or can be found on line 4 of Schedule SE, plus any pension plan in place related to this business.
As a sole proprietor you may have to show more documentation to support your business, such as payroll records, 1099-misc, income/expense reports, bank records, etc.
Q. My small business is seasonal, how do I compute my eligible amount?
Consider activity during the “seasonal period” would be a more accurate reflection of a business’s operations.
Q. My small business was not fully ramped up on February 15, 2020. Am I still eligible?
In evaluating a borrower’s eligibility, a lender may consider whether a seasonal borrower was in operation on February 15, 2020, or for an 8-week period between February 15, 2019, and June 30, 2019.
Q. When does that eight-week period begin to measure payroll paid (out of the PPP loan)?
The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
See earlier comment re: 75% rule on the use of funds.
Q. Is the PPP loan guaranteed by me, the borrower?
NO, there is no personal guarantee under this program, however, if the funds are used for fraudulent purposes, the US Government will pursue criminal charges against you.
Q. Self-employed general comments
Under the PPP plan for small businesses, it specifically states “group health care coverage” is included as “payroll costs”. If you are a sole-proprietor with a solo insurance plan (i.e., for you and your family only), it is not clear if this insurance cost can be added to your base (at the moment). It is not clear, how a sole proprietor’s loan under the PPP will be forgiven if they do not have any other employees, as the Self-employed “group” is open for the loan application April 10, 2020, it is expected this will be clarified.