Starting today, Friday, January 15th, the SBA is accepting applications for the second round of Paycheck Protection Program (PPP) funding from smaller financial institutions.
On Tuesday, January 19th, they will begin accepting applications from all financial institutions.
To apply for the second draw PPP (PPP2), you must meet the following criteria:
- Less than 300 employees
- This appears to be based on headcount, not FTEs
- Gross receipts for any calendar quarter in 2020 must have declined by at least 25% compared to the same quarter in 2019.
- Gross receipts as defined in the IFR are all items of income, net of returns and allowances.
- To calculate gross receipts, follow your normal accounting method (generally cash or accrual).
- The key is to be consistent in the methodology from 2020 compared to 2019.
- Forgiveness from PPP1 is not included in gross receipts, but the SBA has not addressed if any other stimulus funding can be excluded.
- For loans greater than $150,000, borrowers must submit supporting documentation showing the reduction in gross receipts at the time of application. All other borrowers should maintain the same supporting documentation, as it will be required when you apply for loan forgiveness.
- All PPP1 funds must be spent by the time the PPP2 loan is funded
- SBA doesn’t require the forgiveness application to be filed, just that the funds be spent.
- However, some banks are requiring the forgiveness application to be filed prior to submission of the PPP2 application.
- Certification must be made that the current economic uncertainty makes the loan request necessary to support ongoing operations.
- As with PPP1, documenting the circumstances in a memo with other supporting documentation is important. The SBA may be reviewing the information to determine if the loan is necessary, so accumulating and documenting the information now will facilitate a faster response to the SBA or bank inquiries later.
Keep in mind, as with PPP1, the name and loan amount for PPP2 borrowers will be made public.
The PPP2 loan amount is based on either 2020 or 2019 average monthly payroll defined in the IFR as:
- Compensation to U.S. employees as salary, wages, commissions, cash tips, and other similar compensation (gross wages)
- Limited to $100,000 annually per employee, prorated for the period
- Vacation, parental, family, medical, or sick leave
- Exclude sick or family leave where a credit was allowed under the Families First Coronavirus Response Act
- Allowance for separation or dismissal
- Employee benefits – group health, life, disability, vision or dental, and retirement
- State and local taxes assessed on compensation (e.g. unemployment insurance – same as PPP1 definition)
- No FICA
- No employee taxes withheld
If your PPP1 forgiveness application has been submitted, but is under review by the SBA, you may still submit a PPP2 application. The SBA will set aside the funds and process the PPP2 application after the PPP1 forgiveness application has been resolved.
The covered period to spend the funds is any time period between 8 and 24 weeks. We are waiting for SBA and Treasury to issue guidance on the loan forgiveness parameters of PPP2, specifically around FTE and wage reductions. As guidance is issued, we will keep you informed. Contact me today if you have questions about this information.
Our PPP Services Group is here to help. Check out our 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 Holly Ferguson, CPA
Holly Ferguson joined ARB in 1996 and has been a principal for the firm since 2012. Throughout her career, Holly has provided financial reporting consulting services, assisted with transactional accounting and consulting related to business acquisitions/sales, and analyzed implications and strategic implementation of new accounting standards. As the Practice Leader of ARB’s Accounting & Attest Services Team, she focuses primarily on related services for businesses, manufacturers, credit unions, and nonprofit organizations.