More help is on the way for businesses hurt by the coronavirus pandemic. On December 27, 2020, the President signed into law the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, providing an additional $284.5 billion in funding for a second round of forgivable loans through the Paycheck Protection Program. Businesses facing financial hardships may be able to get another round of capital needed to survive the ongoing impacts of the pandemic, but they will have to meet certain eligibility requirements and new restrictions.
Here are the main attributes to the next round of PPP funding and new requirements:
- Creates a second PPP loan called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum new loan amount of $2 million.
- In order to receive a PPP loan under this section, an eligible entity must:
- Employ not more than 300 employees;
- Have received and used the full amount of its first PPP loan; and
- Demonstrate at least a 25% reduction in gross receipts from 2020 relative to 2019
- Eligible entities include privately held businesses*, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
- An eligible entity may only receive one PPP second draw loan.
* a small business concern under the applicable revenue-based size standard established by SBA in 13 C.F.R. 121.201
The following defines a 25% reduction in revenue:
- A quarterly comparison, where gross revenue from one quarter in 2020 is 25% or less than the revenue in the corresponding quarter in 2019 OR
- A year-over-year comparison, where the borrower was in operation in all 4 quarters of 2019 and the total gross revenue in 2020 was 25% lower than for the full year of 2019
Assuming my business is eligible for a second PPP loan, how do I calculate the new loan amount?
- For businesses with NAICS Codes beginning with 72 (Food & Accommodation industry), the loan amount is equal to 3.5x average monthly 2019 or 2020 payroll costs; OR
- For businesses with all other NAICS codes, the loan amount is equal to 2.5x average monthly 2019 or 2020 payroll costs
How can I start preparing to apply for a second PPP loan?
- Compile the following payroll records for 2019 or 2020 (whichever period you choose to use for the payroll calculation):
- Payroll registers for the time period chosen
- 941 tax returns for each quarter of the year of the period chosen
- Tax returns for 2019
- Profit & Loss statement for 2020
Please note, the above information is subject to change by the SBA.
Should you have any questions about the PPP2, loan forgiveness or need assistance with your business, Savoy Bank is dedicated to sharing resources and information to help your small business grow and stay resilient. Let’s connect to find the best financial products that fit your current and future needs.
Mac Wilcox is the President and Chief Executive Officer of Savoy Bank. With more than 20 years of experience as a banking leader and entrepreneur, Mac is a strong believer in small businesses and the power of local entrepreneurs to drive economic development and growth