Nonprofit organizations that received loans through the first round of the Paycheck Protection Program (PPP1) may be eligible for a second draw of PPP funding (PPP2). PPP2 was among the provisions included in the COVID-19-Related Tax Relief Act (COVIDTRA) legislation.
Small, community financial institutions may submit PPP loan applications for first-time PPP borrowers to the SBA today. These institutions may submit second draw applications starting Wednesday, January 13th. According to the SBA, larger lenders will be able to submit applications “shortly thereafter,” so stay tuned.
“This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021, and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan,” stated the SBA in their January 8th Press Release.
Eligibility & Other Program Terms
Nonprofits must still certify that their PPP2 loan request is necessary due to current economic uncertainty. If your loan request is for more than $150,000, you will be required to submit your financial statements or annual tax returns when you apply for the loan. If your loan request is for $150,000 or less, documentation may be requested by the SBA. Unless the documentation is submitted with your original application for a loan of $150,000 or less, documentation supporting the reduction in gross receipts must be submitted on or before the date you submit your forgiveness application.
Any funds from your PPP1 loan must be fully used on eligible expenses prior to the disbursement of a PPP2 loan; however, PPP1 loan forgiveness does not need to be received prior to applying for PPP2. Eligible nonprofits may receive 2 ½ times their average monthly payroll for either 2020 or 2019, with a maximum loan amount of $2 million.
In order to be eligible for PPP2, nonprofits must employ 300 or fewer employees AND have at least a 25% reduction in gross receipts for any calendar quarter in 2020 compared to the same calendar quarter in 2019.
How Are Gross Receipts Calculated for PPP2?
Gross receipts are defined with reference to the definition under Internal Revenue Code Section 6033. Regulation 1.6033(2)(g)(4) provides a definition of gross receipts to include all items of income without reduction for costs or expenses. This means fundraising revenue would not be reduced by direct fundraising expenses, for example, and rental income would not be reduced by rent expense.
While returns and allowances are not mentioned in IRC § 6033, the SBA’s Interim Final Rule (IFR) indicates for-profit gross receipts are net of returns and allowances, and it appears those could be included for nonprofits as well. The method for determining gross receipts should be based on the annual accounting method you use which, for most, would be either the accrual or cash method. Additionally, the IFR specifically excludes any PPP1 forgiveness income recognized in 2020 from gross receipts for purposes of calculating the 25% reduction test.
Contact ARB
ARB is dedicated to helping nonprofit organizations understand COVID-19-related relief programs and comply with new and evolving legislation. Contact us today if you have any questions.
Check out other ARB business tools and resources, such as our 13-Week Cash Flow Analysis tool and our PPP Loan Forgiveness Workbook. Visit our COVID-19 Financial Resource and Tax Center for information on related matters.
by Jason LeBlanc, CPA & Robin Cyr, CPA, MST, JD
Jason LeBlanc joined ARB in 1997 and has been a principal for the firm since 2016. Throughout his career in public accounting, Jason’s focus has been on M&A advisory services and providing accounting, compliance, and consulting services to clients in the nonprofit and automotive sectors. He is the Practice Leader for both ARB’s M&A Advisory Group and Nonprofit Advisory Services Group.
Robin Cyr joined ARB in 2010. She is a Director in Tax, specializing in providing comprehensive tax compliance and consulting services to corporate and individual clients. Robin primarily serves industry leaders in the nonprofit, manufacturing, and construction sectors. As both a CPA and a lawyer, she provides exemplary tax and consulting services related to estate and succession planning.
