The Small Business Administration (SBA) is The Paycheck Protection Program (PPP) has also begun a second round of loans/grants for qualified applicants. This is a program that could make or break economic survival for many business owners across the nation.
The purpose of this article is to give you the necessary information to determine if you are among those who can take advantage of the PPP to sustain your business throughout the economic turmoil created by COVID.
Please read on to see if you can take advantage of the PPP and its updated rules. It might be the factor that allows you to retain your employees and keep your business afloat.
Is There a Second Draw for the PPP?
The PPP, beloved by many business owners for how it enabled them to retain and pay employees, is back for a second round. If you have already benefited from the first time this program emerged, don’t worry, the second round is in response to the unparalleled popularity of the program’s first run and is meant for you!
If you didn’t receive funds during the first round of PPP lending, that’s okay too. You’ll be able to apply just the same as any businesses that have.
In general, the restrictions on PPP borrowers have gotten more specific in the second draw. More focus has been put into ensuring that smaller businesses, including sole proprietors and self-employed individuals, can apply for the same funds that larger business owners have been able to access through different programs .
In other ways, the restrictions have relaxed. Business owners with felony convictions are now able to apply for PPP funds, so long as their conviction wasn’t fraud-related in any way. This includes embezzlement, bribery, etc…
I will go into further detail regarding restrictions on PPP second draw applicants so that you’ll be able to finish this article and know whether you are among those that should start filling out applications.
What’s The PPP Application Process?
Before getting into the details, the most important thing is to know that your application needs to be submitted prior to May 31, 2021. I recommend getting your application submitted as soon as possible. The last days before deadlines always create a figurative logjam and literal pile of applications that lenders require some time to sort through. Getting a jump on your application could make a big difference in how long it takes you to receive your funds.
There’s also the added benefit of ensuring that the rules and requirements don’t change while you’re taking your time to fill out the application. There have been four versions of the application in 2021 alone! This is the most recent application and is the form you should be filling out.
Information You’ll Need for the Application
The information you’ll need is standard and you probably have it accessible but in the case that you don’t, here is the information you need to track down about your business:
- The number of employees you have on the books. One new aspect of the second draw is that you cannot have more than 300 employees per location. As noted above, the purpose of the second draw is to ensure that smaller businesses are able to get the same support that bigger businesses are able to access.
- Standard name, email, address, business trade name, business address. Double check the trade name DBA because you’ll want to eliminate any chance of confusion should the trade name be listed as different things on different documents.
- Your employer TIN/EIN/FEIN Number. This is something that you’ve probably used a lot in the past year, but if you’re not sure of it, check your tax documents or reach out to your payroll and accounting partners.
- Your NAICS code. This is a numeric code that classifies what type of business you operate. If you’re not sure what your NAICS code is you can click here to find out.
- Proof of a 25% reduction in quarterly income compared to the 2019 reference quarter. If the amount you’re going to borrow doesn’t exceed $150,000 you won’t need to demonstrate this up front. That said, keep in mind that the SBA could demand you provide evidence of this at any moment, so it’s a good idea to get the documentation ready so there’s no stress if they ever come asking for it.
- Your average monthly payroll costs. If you don’t have employees you can use the draw you, or you and your partners take.
- The SBA loan number from your first draw PPP. This can be found on the approval notice from your first form, and most likely will be in any emails you received from your lender. If for some reason you can’t track this down, reach out to your lender and they will be able to provide it to you. I highly recommend that you look into this sooner rather than later because it’s a petty but important detail that will prevent you from applying for the second draw should you not have it. If you wait until the last moment to ask your lender it might be far down their list of things to handle.
- What you intend to use the PPP funds for. Keep in mind that at least 60% of your PPP funds need to be used for payroll if you want the loan to turn into a forgivable grant.
- The breakdown of the ownership structure if the business is owned by more than one entity. You will need to provide the information specific to each owner (name, address, taxpayer ID, percentage of ownership, etc..).
- There is a list of questions on the second page of the application. I won’t list them here because it’s overkill, but I highly recommend you read them now to figure out if there’s any confusion for how you’ll answer. If you’re not sure, speak to your lender, your lawyer, your accountant, or someone that knows more than you and can properly advise.
Who Lends the PPP Money?
After filling out the application, you’ll need to find a lender who is participating in the PPP program. The chances are that you’ll return to the institution that issued your loan in the first round, but if you wanted to change lenders you can see the participating lenders here.
It’s worth mentioning, it’s a simpler process if you return to the same lending institution you used the first time around.
If you didn’t participate in the first round of the PPP, allow me to quickly explain how this works. The federal government sets the qualification standards and the lending terms, local banks and credit unions process your application on behalf of the federal government.
The rationale behind “subcontracting” the application process out to private lending institutions was that they were vastly more prepared for the kind and level of work that was about to begin. The SBA, while a respected government agency, was simply not equipped to deal with the torrent of applications that would follow the implementation of the PPP.
What Are the Eligibility Requirements?
Quoting a JDSupra article, the types of organizations that will qualify include: “It is a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a First Draw PPP Loan, veterans organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, eligible nonprofit news organization, additional covered nonprofit entity, or eligible Internet publishing company.”
While the employee limit is set at 300, if the business’ NAICS code begins with “72” it is exempted from this limit. It is also possible that if your NAICS code begins with “72” you could qualify for 3.5 times your monthly payroll costs as opposed to 2.5. This distinction applies to businesses in the accommodation and food service industries.
If you received a first draw PPP loan, you need to have spent the entirety of the funds prior to receiving the second draw. You also need to have spent the funds in accordance with the rules laid out for the first draw. This isn’t something that will likely be reviewed, but should the SBA come looking for confirmation that everything’s on the up and up, it’s good to be in compliance.
You must have been an operational business on February 15, 2020. This is as clear cut as any government stipulation will ever get.
Without getting too into the details, suffice it to say that if you’re involved in any bankruptcy proceedings, being investigated for misuse of earlier stimulus funds, or have a cloud of suspicion over your financial activities, you’re probably going to be denied the second draw PPP.
What Can I Use PPP Funds For?
PPP funds are to help pay employees wages, owners’ draw, as well as necessary business expenses like rent and utilities. If you’re interested in having the loan forgiven, at least 60% of the funds should go to the payment of payroll, the remaining 40% can go to most reasonable business expenses so long as you’re not re-loaning the money or using it for what the SBA would consider expansion.