The first dispersal of business loans through the Paycheck Protection Program quickly evaporated. Now, as more relief comes down the line, here are the stipulations you should keep in mind if you’re a small business owner hoping to acquire a second loan.
The guidelines to qualify for a second PPP loan are:
- You have 300 or fewer employees.
- You had a 25% drop in revenue for one quarter from the prior tax year. It must match the quarter from the prior tax year – you cannot take the best quarter of one year to “match it” to the worst quarter of 2020. For example, your business had a 25% drop in revenue when comparing quarter one 2019 to quarter one 2020.
- The funds from your first PPP loan must be exhausted in full. Also, if you have a loan that is not fully spent and you receive another loan, the unspent portion will not be part of the forgivable portion of the loan. There are exceptions, including if you fired an employee who received PPP funds or your workplace was forced to shut down due to CDC closure guidelines. These amounts will be forgiven.
- In order to qualify for a second PPP loan, the loan must be necessary in order for your business to survive. The Small Business Association (SBA) states they will not challenge the necessity of a loan; however, a whistleblower or the IRS can challenge the necessity, i.e. report you for using funds for non-business use. The receiver of the loan will sign a statement proclaiming the funds are for business use and necessary to continue operations. The burden of proving the necessity of the funds lies entirely with the recipient, not the bank that assists in preparing paperwork to distribute the funds. The business owner is subject to penalty perjury laws.
Additionally, it has been determined that recipients of loans will be listed in public record. Previously, PPP loan recipients were going to remain anonymous, but now that information will be available to the public.
Nitty Gritty PPP Loan Details
- Two and a half times the average cost of a payroll period for calendar year 2019 is how the amount of the loan is determined.
- The maximum loan amount is $2,000,000, and the business must have been open prior to February 2020.
- There is a 90-day waiting period between loans.
- The bankruptcy court is now allowing businesses in bankruptcy to qualify for the loan, which previously was prohibited.
- The loan contract has been reduced to one page; however, the long-form information is what the SBA will look back upon in determining if the business owner honestly required the loan funds to operate their business.
- This bill allows expenses paid with loan funds to be tax-deductible in the same manner as they would be if you did not use loan funds to pay for them.
Still Have PPP Funds to Disburse? Here Are a Few Expenses That Qualify:
If there are PPP funds that still need to be disbursed in 2020, a business owner can get “creative” in how they compensate employees. For example, you can reimburse employees and independent contractors for work-at-home expenses, such as laptops, grocery delivery, and accommodations to convert their home into a workspace. With these reimbursements, the business would receive a deduction, and the employee gets payment, which is not subject to withholding, from PPP funds. This could be a holiday bonus to employees to spend down PPP funds and reimburse employees, therefore allowing you to qualify for loans.
What if I Previously Had a PPP Loan and It Was The Wrong Amount or I Sent It Back?
If your loan qualified to be more than you received, you can amend it and receive that amount. If you qualified for a PPP loan and gave it back, you can receive the loan back. Any changes in the rules, you can reapply for the difference under this newly formed act.
There is a lot of information to digest involving PPP loans. If you have any questions about the specifics of this legislation or how it applies to your situation, please feel free to reach out to us via email or by filling out this contact form.