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What are the differences between funding rounds of the PPP program?

differences between funding rounds of the PPP

The second round of funding for the SBA Paycheck Protection Program totals $284 Billion. However, you have until March 31, 2021 in which to apply

On January 11, 2021, the second round of loans under the Small Business Administration Paycheck Protection Program opened to community financial institutions. Two days later, on January 13, 2021, the program opened to all participating lenders. The PPP program for both first-time loans and second draw loans will remain open until March 31, 2021.

We are currently accepting applications for the PPP loan program processed through our partner, SmartBiz Loans. We have helped small businesses navigate the US Small Business Administration 7(a) loan application process for several years, having assisted hundreds of clients get the funding they need to grow their business.

First time PPP Applicants

Eligible small businesses that could not receive a PPP loan in the first round of funding before the program’s expiration on August 8, 2020, can reapply for a PPP loan. Additionally, a borrower that returned all of the proceeds from their PPP loan proceeds may reapply for a new loan for the amount it is eligible for under current rules. Lastly, suppose a borrower did not accept the full amount they were awarded. In that case, they may also apply to increase their loan amount for the difference between the amount retained and the amounts previously approved.

PPP loans for new applicants will be subject to the same program rules and eligibility criteria that were in place in the initial two rounds of funding. There are new restrictions as well, one of which stipulates that a business must have been in operation before February 15, 2020.

The maximum amount that a small business may borrow for the first time PPP loan is the lesser of 2.5 multiplied by the borrower’s average monthly payroll costs or $10 million.
For the purposes of the calculation, a borrower may choose to use the average monthly payroll from the one year before the date on which the loan is made, the calendar year 2019, or calendar year 2020.

Second Draw PPP loans

Small businesses that previously received a PPP loan may be eligible for a second PPP loan if they have used the full amount of their first-round PPP funds on qualified expenses.
Second draw PPP loans can’t exceed $2 million and are limited to small businesses with 300 or fewer employees and can demonstrate a loss of 25% of gross receipts in 2020 compared to 2019 or in any quarter during 2020 to the same quarter in 2019.

The eligibility rules remain mostly the same. The only difference is that the qualification numbers in terms of employees are revised downward from 500 employees to having 500 or fewer employees.

Calculating gross receipts

To calculate gross receipts to determine if a business suffered a 25% loss of gross receipts between 2019 and 2020, the borrow must include all revenue in whatever form received or accrued by the borrower and any affiliates from whatever source, including from the sale of products, interest, dividends, fees, commissions, and so forth. Proceeds received from the initial first PPP loan are excluded from the calculation of gross receipts.

For applicants that acquired a new business during 2020, receipts from the entire measurement period need to be included in the calculation, not just for the period after the acquisition.

Expansion of Eligible and Forgivable Expenses

In addition to rent, payroll, utilities, and interest on mortgages permitted under the CARES act, this new round increases the number of eligible and forgivable expenses. Personal protective equipment for employees, the costs associated with outdoor dining, supplier costs, costs related to software, cloud computing, and other human resources and accounting needs are added to the list of eligible and forgivable expenses. Additionally, property damage due to public disturbances during 2020 that are not covered by insurance is also an eligible expense.

Streamlined PPP forgiveness forms

One of the SBA requirements for its revived PPP program with $284 billion in funding for small businesses was that the SBA issue streamlined forgiveness forms within 24 days of the legislation being signed into law. The SBA met this requirement with their release of the one-page documents for PPP loan forgiveness. The revised forms include:

Form 3508S: A one-page forgiveness form for PPP loans of up to $150,000 along with instructions
Form 3508-EZ: A more straightforward application form for forgiveness for borrowers who meet specific safe harbor conditions
Form 3508: The complete application for the forgiveness of PPP loans for those who don’t qualify for using either of the forms above.

Wrapping it all up

The US Government, through the SBA, has approved another round of funding for the Paycheck Protection Program that is open until March 31, 2021. If you missed out the first time around or meet the qualifications for additional funding, contact us as we can help.

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