Out of the $900 billion provided in the recent bill, $284 billion is set aside for first and second PPP forgivable small business loans.

With the recent passing of the $900 billion COVID-19 Relief Bill, new doors open for small businesses that could not take advantage of the PPP loans during the first round or for second-timers who have experienced a decline in revenue due to the pandemic. 

In our previous blog, we went through the key highlights of the December 2020 COVID-19 Relief Bill in addition to an overview of the PPP loans. 

This blog will provide a breakdown of the second round of PPP or PPP2 as some are calling it.

Out of the $900 billion provided in the recent bill, $284 billion is set aside for first and second PPP forgivable small business loans.

Small businesses that never received PPP loans during 2020 are considered first-timers and can apply during the second round if they qualify. Small businesses with 500 or fewer employees, including sole proprietors, independent contractors, and eligible self-employed individuals (ex. S Corporations), are welcome to apply.  

Similar to the first round of PPP that ended in August 2020, first-timers in this second round are eligible for a PPP loan if you: 

  • Are an independent contractor, eligible self-employed individual, or sole proprietor 
  • Were in operation on February 15th, 2020
  • Either had employees for whom you paid salaries and payroll taxes, or you were an eligible self-employed individual, independent contractor, or sole proprietorship with no employees
  • Can provide requested documentation to establish eligibility 

The following documents are sufficient to establish eligibility:

  • Payroll records
  • Payroll tax filings
  • Form 1099-MISC
  • Schedule C
  • Income and expenses from a sole proprietorship, or 
  • Bank records

It is important to note that partnerships (LLC filing taxes as a partnership) are also eligible for PPP loans under the CARES Act, but only one PPP loan application is acceptable from each LLC. 

Like the First Draw PPP Loans, Second Draw PPP Loans are guaranteed by the Small Business Administration (SBA) under the same terms, conditions, and requirements. 

The interest rate is one percent, calculated on a non-compounding, non-adjustable basis with five years maturity date. 

Second-timers may apply for another loan if the following requirements are met:

  • Have 300 or fewer employees
  • Have used or will use the full amount of their first PPP loan and 
  • Can show 25% gross receipts decline in any 2020 quarter compared with the same quarter in 2019

Eligible self-employed individual, independent contractor, or sole proprietorship with no employees can also apply as a second-timer during the new round of the PPP loans. 

According to the SBA, gross receipts or income include “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.”

Taxpayers have the option to base their PPP loan amount on either 2019 or 2020 Form 1040 Schedule C, IRS Form 1099-MISC, payroll records, or book of records. This option applies to both first and second-timer applicants. 

The Maximum Amount Of A PPP Loan

The maximum amount of a PPP loan for a borrower that has income from self-employment with no employees and files a Form 1040, Schedule C, is calculated using the net profit of 2019 or 2020 IRS Form 1040 Schedule C. 

For a borrowerwith income from self-employment who has employees, the maximum loan amount is calculated by reviewing the net profit in 2019 or 2020 IRS Form 1040 Schedule C. Also, the average total monthly payment for employee payroll costs is considered to arrive at a loan amount.

A partnership’s maximum loan amount is based on net earnings from self-employment reported on 2019 or 2020 IRS Form 1065 K-1 with specified adjustments. 

For all other borrowers, the maximum loan amount is based on the business’ average monthly payroll costs for the calendar year 2019 or 2020. 

Forgivable PPP Loans - Business Expenses That Qualify

At least 60 percent of the PPP loan proceeds must be used for payroll costs for the loan to be forgiven.

In addition to payroll costs, the rest of the proceeds of a PPP loan are to be used for:

  1. Mortgage interest payments (but not mortgage pre-payments or principal payments) 
  2. Rent payments
  3. Utility payments
  4. Interest payments on any other debt obligations that were incurred before February 15th, 2020
  5. Refinancing an SBA EIDL loan made between January 31st, 2020, and April 3rd, 2020
  6. Covered operations expenditures (business software or cloud computing service, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and costs)
  7. Covered worker protection expenditures (operating or capital expenditure to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government)

To figure out how to get your PPP loan forgiven, check out our other blog highlighting the loan forgiveness process. If the SBA does not excuse your PPP loan, you can also read the blog to see when you will begin paying the principal and interest. 

How To Submit A PPP Loan Application

According to the SBA, the applicant must submit the Paycheck Protection Program Borrower Application Form (SBA Form 2483), or the lender’s equivalent form, and supporting documentation, as described above. 

The application form is not submitted to the SBA but to an SBA participating lender. 

Find a Lender That Will Give You No Runarounds

Funds ran out in two weeks last year during the first round of the PPP loans. It is projected for this to happen again in the second round. Find a lender who will support you during the process.

You have options by reviewing the pros and cons of traditional banks or fintech companies. 

According to financial experts, this second round of the PPP loans will be more complicated than the first. Seeking professional guidance is crucial. 

At the CPA for Psychotherapists, we have helped therapists and small businesses for over 12 years in all 50 states and have expert experience getting our clients’ PPP loans approved.

Request your complimentary consultation today to get your PPP loan application in place before funds run out. 

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