With the Consolidated Appropriations Act, 2021 in full effect, many businesses across the nation received a second chance at keeping their doors open. On December 27^th, the Act was signed into law providing $284.5 billion dollars of additional funding for the SBA - Paycheck Protection Program. Business owners who did not apply for a PPP loan the first time around are now eligible to apply, along with second time borrowers who need the additional assistance. The SBA began accepting applications on January 11^th for first time drawers and January 13^th for second time drawers. If you are considering taking advantage of this second round of PPP loans, now is the time to apply. According to the SBA, the program has approved 60,000 PPP Loan Applications submitted by nearly 3,000 lenders, already utilizing nearly $5 million dollars of the appropriated funds through January 17^th. Please note that all PPP Loan applications must be submitted to the SBA by March 31, 2021 to qualify for this additional funding. Here is a brief breakdown of how this second round of funding will unfold. 

Overall, first and second time PPP borrowers may obtain a PPP loan up to 2.5 times their average monthly payroll costs in 2019, 2020 or the year prior to the loan. (A cap per employee of $100,000 annualized still applies.) PPP borrowers such as hotels and restaurants can receive 3.5 times their average monthly payroll costs on the second-draw loans. (This only applies to PPP borrowers with NAICS codes starting with 72.) Loans are capped at $10 million for first-time borrowers and $2 million for second-time borrowers. 

First draw loans are calculated as 2.5 times the average monthly payroll cost, up to $10 million. The average monthly payroll costs are based on the 2019 or 2020 calendar year or the 12 months period prior to the loan application. Payroll can include items such as gross wages and tips, employer contributions to employee benefits, retirement contributions, and state and local taxes assessed on employee compensation. Keep in mind that the average monthly payroll is also adjusted for compensation paid to an employee of more than $100,000 on an annual basis.

For seasonal employers, the loan amount is based on 2.5 times the average monthly payroll costs for any 12-week period between Feb. 15, 2019 and Feb 15, 2020. Entities that did not exist for the full one-year period before Feb. 15, 2020, should calculate the maximum loan amount based on 2.5 times payroll cost paid or incurred as of the date of the application divided by the number of months costs were paid or incurred. Finally, self-employed borrowers that have no employees and file a Schedule C on their 1040 return, can borrow 2.5 times their average monthly net profit based on line 31 of their 2019 or 2020 return, which is capped at $100,000. Self-employed borrowers with employees can borrow 2.5 times their average monthly payroll costs. The average monthly payroll cost is calculated by dividing the sum of their 2019 or 2020 Schedule C line 31 amount plus the payroll costs paid to their employees (capped at $100,000) by 12.

Borrowers that continue to struggle financially are granted the opportunity to receive a second PPP loan. This loan is calculated similarly to that of first draw loans up to $2 million dollars. Loans are accessible to entities that:

For entities that were not in business for the full year period before Feb. 15, 2020, the average monthly payroll costs are calculated as payroll cost paid or incurred as of the date of the application divided by the number of months costs were paid or incurred.

For self-employed borrowers with and without employees, their borrow amount is calculated similarly to that of the first round.  

For borrowers that were in operation all four quarters of 2019, gross receipts must be compared to the first, second, third, or fourth quarter in 2020 to the same quarter in 2019 to determine if a 25% or greater reduction in gross receipts exists. Only calendar quarters are to be used in the calculation. Borrowers can also choose to use annual 2020 gross receipts compared to that of 2019 to simplify the calculation. Documentation of revenue reduction for loans greater than $150,000 is required at the time of the loan. It is not required for the loan application for amounts less than $150,000; although, it will be required for loan forgiveness. Other documentation required will depend as to whether the lender will use the same payroll information provided with the first draw loan.

Borrowers can apply to have their loan forgiven up to the full amount of the loan and any accrued interest if:

Borrowers can apply for forgiveness once they have utilized all the loan proceeds for which they are requesting forgiveness. Also, they can apply for forgiveness any time up to the maturity date of the loan. Borrowers must apply for forgiveness within 10 months after the last day of their covered period or else the loan payments will no longer be deferred. Borrowers will then be required to make payments towards their loan.

Loan forgiveness has been simplified for first and second draw borrowers with loans less than $150,000. The SBA formerly provided Form 3508S for loans of $50,000 or less. The form can now be utilized for loans $150,000 or less. Additionally, the current Act states that for federal income tax purposes, expenses paid with PPP Loan proceeds are deductible and the forgiveness of the PPP Loans is also not taxable. Keep in mind that the SBA could review and audit any PPP Loans of $150,000 or less and gain access to any documentation the borrower may have used for the loan itself.

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