4 Things Every Business Owner Needs to Know About the New PPP Loans

The second round of PPP loans was approved by Congress in December 2020, as part of the second coronavirus stimulus package. 

Because the money is lent on a first-come, first-served basis, you don’t want to wait to apply. While the deadline isn’t until March 31, 2021, it’s a good idea to get started as soon as possible. 

Whether you received a PPP loan in April 2020, and want to apply for a second, or you’re applying for the first time, here’s what you need to know. 

Eligibility rules

Businesses can apply for up to 2.5 times their monthly payroll costs, up to a maximum of $2 million. This is a reduction from the initial $10 million that businesses were able to apply for, aimed at reducing the potential for large businesses to drain the PPP funding. 

If you’re a freelancer or sole proprietor, you can still apply, but the amount you’re eligible for is determined differently—it’s 2.5 times the monthly profit you reported on your 2019 Schedule C tax form. 

As per the latest amendment under section 1109 of the CARES Act, borrowers of first draw PPP loans can use 2019 or 2020 to calculate the PPP second draw loan amount.

There are also different rules for first-time and second-time borrowers. 

First-time borrowers: Businesses applying for the first time can find all the eligibility requirements on the Small Business Administration’s website

Generally, any small business, nonprofit, tribal business concern, or veterans organization will be eligible if they meet the SBA’s size qualifications of fewer than 500 employees. Hospitality and foodservice businesses with more than one location may be eligible if they employees fewer than 500 employees at a single location

Second-time borrowers: Businesses that applied and received a PPP loan in 2020 will most likely be eligible for another if: 

• They used the full amount of their first PPP loan for the authorized uses (payroll, some operational costs)
• The business has 300 employees or fewer
• The business can show at least a 25 percent reduction in sales between the same quarters of 2019 and 2020

How to apply

The easiest way to apply is to go through the bank you already use—thousands of banks both large and small are participating lenders for the PPP program. 

If your bank isn’t one of the participating lenders, they can almost certainly point you toward a lender who can help you. You can also apply online through Paypal, Square, Fundera, and others. A full list of fintech companies offering the loans can be found on the SBA website

How to get your loan forgiven

Just like the first round, the second round of PPP loans is forgivable. In order to qualify for forgiveness, you’ll need to fill out either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or an equivalent form from your lender.

There’s some additional good news for borrowers of less than $150,000. Recipients of loans at this amount or less can apply using the simplified, one-page Form 3508S, which requires fewer calculations and less documentation than the other forms. 

To be eligible for forgiveness you must meet the following criteria: 

• At least 60% of your loan was used for payroll costs. 
• You maintained your employee and salary levels
• The remaining loan funds are spent on eligible expenses (rent/mortgage interest for agreements in place before February 2020; utility costs; some operational costs).

Paperwork needed to apply

The paperwork you’ll need to complete will depend somewhat on the lender you use—however, for a first PPP loan, you’ll definitely need to provide your: 

• Payroll documentation
• 2019 tax documents

If you’re applying for a second PPP loan you’ll need: 

• Payroll documentation
• 2019 tax documents
• Proof that your sales dropped by at least 25 percent in 2020. While this particular piece of documentation isn’t strictly required at the time of application, you will need it in order to obtain forgiveness, and many lenders will ask for it with the other application paperwork. 

Applicants can expect to receive funds relatively quickly, within a few days of application. This is slower than the first round—initially, many PPP borrowers received funds the same day they applied—but that’s because the SBA has added in more fraud checks and vetting in order to avoid some of the issues with the initial round of PPP loans. 

Applying for a PPP loan could help you keep your business afloat as we begin to come out of the coronavirus slump. At AG FinTax, we’re dedicated to helping Small Businesses through the PPP application and forgiveness process. If you need help, get in touch!