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.