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News January 11, 2021

Interested in a PPP Loan? You Need to Read This

New information that clarifies questions about eligibility and loan forgiveness has been released. The application period for new Paycheck Protection Program loans has begun.

By  Christopher Ruvo

UPDATE MONDAY, January 11, 2021, 2 p.m. EST
The Small Business Administration has officially announced that it will launch a third round of the Paycheck Protection Program loans the week of January 10, starting with small community financial institutions on Monday, January 11, and larger lenders in the coming days.

The U.S. Small Business Administration (SBA) and Treasury issued guidance on Wednesday, Jan. 6 about the new round of Paycheck Protection Program (PPP) loans available through the $900 billion federal COVID-19 economic relief plan that was signed into law at the end of December.

The SBA, which administers the PPP, could begin allowing businesses and other eligible entities to apply for the latest round of PPP loans as early as the week of Jan. 10. The application period is set to be open through March 31.

blocks with ppp 2021

In all, $284 billion in new PPP loans are available to U.S. small businesses, including those in the promotional products industry, which saw suppliers, distributors and decorators all applying for and receiving loans during the first round of PPP in 2020 as industry sales crumbled amid the challenges of the COVID-19 pandemic.

As for the guidelines from the SBA, this document details the rules for PPP forgivable loans for first-time borrowers. It outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act. Meanwhile, information in this document details guidelines for the new PPP loans to businesses that got a PPP loan last year. In a third guidance, the SBA indicated that it could make at least the first two days of the new PPP application period open only to applications from financial entities that serve minority- and women-owned businesses.

Eligibility
The fresh round of PPP, referred to for short as “PPP2,” features some changes about which businesses eager to apply should be aware.

For example, businesses that got a PPP loan in 2020 can apply for another loan, of up to $2 million, if they have 300 or fewer employees, will have used the full amount of their initial loan on eligible expenses by the time the second loan would be disbursed, and can demonstrate that they experienced a 25% or more gross revenue decline in 2020 as a whole compared to 2019 or in at least one quarter of 2020 compared to the same quarter the prior year.

To demonstrate the required decline, a business could present gross receipts from any one quarter in 2020 compared to 2019. If the business was in operation for all of 2019 and 2020, it could share copies of its 2020 annual tax forms that show the 25% or more annual revenue plummet.

If you didn’t get a PPP loan the first time around, you can now, provided you meet certain criteria.

For a first-time loan, businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans qualify, as do nonprofits, churches, sole proprietors, independent contractors and eligible self-employed people. Promo pros that have clients in the hospitality/bar/restaurant business may want to note that accommodation and food service businesses with fewer than 500 employees per physical location are eligible.

According to authorities, would-be borrowers applying for a second PPP loan are eligible to receive a maximum of $2 million. Receiving a PPP loan for the first time? Your business can get a loan of up to two-and-a-half times your average monthly payroll costs in the year prior to the loan or the calendar year, though employees making more than $100,000 annually can’t be counted in the total payroll tally. Hotels and restaurants are eligible for loans of up to three-and-a-half times their average monthly payroll costs. The maximum amount any first-time PPP borrower could receive is $10 million.

Notably, federal authorities have set aside $15 billion (for first-time loan recipients) and $25 billion (for second-time loan receivers) specifically for borrowers that employ no more than 10 people or for loans of less than $250,000 to borrowers in low/moderate income neighborhoods. At least 25% of each of those two pools of money will go to borrowers in each of those eligible groups.

Loan Forgiveness
Some good news for potential borrowers: Loans are again potentially forgivable, if the money is spent on expenses that are eligible for forgiveness.

For starters, full loan forgiveness can only be achieved if at least 60% of the loan funds go to cover payroll. The money must be used within eight to 24 weeks.

Overall, costs eligible for forgiveness include payroll, utilities, rent and covered mortgage interest. New to PPP2 are additional possible qualifying forgivable expenses. These include investments in worker protection and facility improvements that businesses made as a result of federal COVID-19 health and safety guidelines; PPE expenses are an eligible item here. A business that spends PPP funds to deal with damage incurred during the social unrest of 2020 – damage that wasn’t covered by insurance or other means – can use PPP2 money to cover the expense and have it forgiven.

Certain operating expenditures are also now eligible for forgiveness. These include business software or cloud computing necessary to a borrowers’ operations; costs tied to accounting/tracking of supplies, records and expenses; sales and billing functions; delivery of product or service; payment processing and tracking; and human resources.

PPP2 has other business-friendlier measures as well.

There is, for instance, a streamlined process for applying for forgiveness of loans of $150,000 or less. Borrowers of such loans will have their loans forgiven if they sign and submit to their lenders a one-page certification that includes a description of the number of employees they were able to keep on the books because of the loan, estimated total amount of the loan spent on payroll, and the full loan amount. The SBA is expected to release that one-page form by Jan. 20.

Clarification: An earlier version of this story contained confusing reference regarding loan eligibility. The content intended to clarify that businesses controlled directly or indirectly by the U.S. president, vice president and members of Congress, among others, are not able not receive PPP2 loans.