Second Paycheck Protection Program (PPP2) Loan Eligibility For Small Businesses

As of December twenty seventh, 2020 the Paycheck Safety Program is again, and Biz2Credit can get your business started with a simple course of that can assist you get funded shortly.

When Congress handed the Financial Support Act (EAA) on December 27, 2020, it introduced some much-needed monetary aid to the small enterprise group by inexperienced lighting an extra $284 billion in small enterprise loans to the U.S. Small Enterprise Administration’s (SBA) Paycheck Safety Program. These new Paycheck Safety Program loans are aimed to get funding into the arms within the companies that want them essentially the most—and whereas first-time debtors proceed to be eligible for loans underneath the PPP program, for the primary time, previous PPP debtors also can apply for a second PPP mortgage to safe the extra funding they should preserve their companies shifting ahead by way of the continued pandemic.

These second PPP loans (additionally known as PPP2 loans) are the lifeline many small companies have to preserve their doorways open. However what, precisely, are the eligibility necessities for these second draw loans? Are there any modifications to eligibility for first-time PPP debtors underneath the EAA program vs. the unique PPP? And what steps do small enterprise house owners have to take to make sure they get the PPP mortgage they should assist their corporations—whether or not they’re making use of for his or her first spherical or second spherical of PPP funds?

First draw mortgage eligibility necessities

As talked about, PPP2 loans can be found for each first-time debtors and companies which have already secured a PPP mortgage. , let’s evaluation the eligibility necessities for first-time debtors underneath the Paycheck Safety Program.

Underneath the brand new EAA laws, the eligibility necessities for first-time debtors (additionally referred to as first draw loans) have remained the identical as they had been underneath the CARES Act and PPP1, together with:

• The enterprise was in operation on February 15, 2020
• The enterprise continues to be open, operational, and isn’t at the moment engaged in chapter proceedings.
• The borrower is a mall enterprise, eligible nonprofit group, Veterans group, Tribal group, sole proprietorship, self-employed particular person, or impartial contractor
• The enterprise has fewer than 500 workers (or matches the SBA’s small enterprise dimension commonplace within the enterprise’ trade)
• All enterprise house owners with a 20 % or larger stake US residents or everlasting residents
• All enterprise house owners don’t have any legal report over the previous seven years
• The enterprise and house owners should not delinquent on any SBA or federal mortgage with no historical past of defaulting on such loans over the previous seven-year interval

Small companies can apply for a primary draw PPP mortgage of as much as 2.5 instances their common month-to-month payroll prices for a most mortgage quantity of as much as $10 million. (Underneath the EAA, that quantity is elevated to three.5 instances common month-to-month payroll for any enterprise with a NAICS code beginning with 72—the Lodging and Meals Companies trade, one of many hardest hit by the pandemic and COVID-related restrictions).

So long as the borrower makes use of the mortgage proceeds on permitted bills, the complete mortgage quantity would qualify for mortgage forgiveness. To be able to qualify for mortgage forgiveness, the borrower should meet the next standards:

• The mortgage proceeds had been used to cowl permitted bills. To be able to qualify for forgiveness, PPP loans have to be spent on permitted payroll prices (together with worker wages and sick depart) and nonpayroll prices—which, along with the unique eligible bills like utilities, mortgage curiosity, and lease funds, had been expanded underneath the EAA to incorporate employee safety expenditures (like PPE), operations expenditures, and property injury to the enterprise’ bodily location on account of a public disturbance.
• The mortgage proceeds had been used to pay bills throughout the coated interval. Solely bills {that a} enterprise concern incurs throughout the coated interval will qualify for mortgage forgiveness. Whereas the PPP1 allowed companies to decide on between an eight-week and 24-week coated interval, companies now have the flexibleness to decide on their very own coated interval—so long as it falls between eight and 24 weeks.
• No less than 60 % of mortgage funds had been used for payroll prices. To be able to qualify for full PPP mortgage forgiveness, companies should spend no less than 60 % of their mortgage on payroll prices.

Second draw mortgage eligibility necessities

As a result of the SBA needs to make sure that PPP2 funds go to the companies that want it essentially the most, eligibility necessities for second draw PPP loans are completely different—and extra stringent.

The variations between eligibility necessities for first-time and second-time debtors embrace:

• Variety of workers. To be able to qualify for a second draw mortgage, debtors will need to have not more than 300 workers (or, for companies with an NAICS code 72, 300 or fewer workers per location).
• First draw mortgage proceeds. The enterprise will need to have exhausted (or will exhaust) the funds from their first PPP mortgage.
• Income discount. Companies making use of for a second PPP mortgage should be capable to present a 25 % year-over-year lower in income in no less than one quarter of 2020.

The utmost mortgage quantity companies can apply for can be completely different for second draw loans; whereas first-time debtors can apply for a mortgage of as much as $10 million, second draw loans are capped at $2 million.

Tips on how to calculate income discount for a PPP2 mortgage

As talked about, with the intention to qualify for a second mortgage by way of the Paycheck Safety Program, companies want to have the ability to present that they skilled no less than a 25 % lower in income in Q1, Q2, Q3, or This autumn 2020.

When the EAA first handed, there have been lots of questions within the small enterprise group round how, precisely, to calculate and present that income discount. However, based on the Interim Ultimate Rule, there are two methods to calculate and present income discount—and each depend on “gross receipts.”

Gross receipts contains all income (both money or accrual, relying on the corporate’s accounting technique), together with gross sales of merchandise and/or companies, curiosity, dividends, rents, royalties, charges, and/or commissions—then diminished by returns and allowances.

Underneath the brand new interim rule, companies can both calculate income discount by evaluating gross receipts from any quarter within the 2020 calendar 12 months and evaluating these gross receipts to the identical quarter in 2019—or, if the enterprise doesn’t preserve quarterly financials, they’ll examine their annual gross receipts from 2020 to their annual gross receipts from 2019. 

Submit your PPP utility by March 31

Whether or not you’re making use of for a primary draw or second draw PPP mortgage, mortgage purposes are resulting from PPP lenders no later than March 31, though this system’s funds could also be exhausted earlier than then. In the event you’re planning on making use of for a mortgage by way of PPP2, ensure to submit your utility to your lender as quickly as attainable.