PPP Loan Round 2 – Should You Apply?
Jim Biehl
A new round of PPP loans (PPP2) was ushered in with the passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) on December 27, 2020. In addition to the 2nd draw loans, eligible businesses that did not receive a PPP loan in the first round of funding have an opportunity to apply for a PPP loan.
Eligible borrowers include small businesses, nonprofit organizations, cooperatives, veteran’s organizations, certain self-employed individuals, sole proprietors, and independent contractors that meet the following criteria:
- 300 employees or less; and
- Experienced a 25% reduction in gross receipts for one calendar quarter (2020 vs 2019)
Borrowers with original PPP loans (PPP1) may be eligible for PPP2 provided they meet the eligibility requirements and have used the full amount of their original PPP loan.
Eligible Loan Amounts
The formula to determine the eligible loan amount is not unlike PPP1, at 2.5 times the average monthly 2019 payroll, but there is now an option to base the computation on the average monthly payroll for a one-year period before the date of the loan. The PPP2 loans/grants are limited to $2 million.
Applicants with a NAICS code starting with 72 (restaurants, hotels, etc.) are eligible to utilize 3.5 times the average monthly payroll amount and the cap is $4 million.
Additional eligibility requirements, terms and conditions:
- 300 or fewer employees, including affiliates; NAICS 72 entities – per physical location
- Loans 100% guaranteed by the government
- No collateral is required
- The interest rate at 1%
- The maturity is 5 years
- Expanded list of eligible businesses to include 501c(6) organizations
- Ineligible businesses (lobbying, certain businesses with ties to China and/or Hong Kong, live venues with grants, public entities)
- Affiliation rules require all employees are counted, including those of foreign affiliates. In the first round of funding these rules were not clear until guidance was issued in May. Borrowers are required to follow all guidance issued at the time of application; therefore, it is important to understand how guidance may have changed since the first application if you believe you are qualified.
Loan Forgiveness
Loans can be forgiven and turned into a grant, like the PPP1 program, provided borrowers spend at least 60% of the PPP funds on payroll costs and maintain employee headcount and compensation, but the new rules expand the definition of “payroll costs” to include group benefits such as life insurance, disability, vision and dental. In addition, the new rules expand the definition of “non-payroll costs” to include payments for software, cloud computing services, property damage costs (due to looting during 2020 not covered by insurance), certain supplier costs and costs for worker protection expenditures.
Finally, as required under PPP1, the borrower will need to certify in good faith that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant”. However, although the SBA has maintained that it will not question/audit the necessity certification of borrowers who have aggregate loans not exceeding $2 million, the additional PPP2 funds could result in a borrower exceeding the threshold, thereby requiring submission of Form 3509 and subjecting them to SBA audit, and additional SBA scrutiny. Therefore, we recommend you review your situation with your CPA and attorney prior to applying for PPP2 funds.
Contact Us
As additional guidance is issued on PPP2, we will be sure to keep you informed. For additional information, call us at 248.208.8860 or click here to contact us. We look forward to speaking with you soon.