It's no secret that 2020 was a challenging year for small businesses. It's now 2021, and we're not out of the woods yet. COVID is hitting all-time high spikes, local governments are issuing stay-at-home orders, and small businesses still struggle to stay afloat.
Last year, the U.S. Small Business Administration's (SBA) Paycheck Protection Program (PPP) provided some relief to small businesses, but funds were depleted quickly. In December, Congress passed a new Coronavirus stimulus package. This stimulus package includes a new PPP loan program that sets aside $284.5 billion for forgivable small business loans.
The SBA began accepting applications on January 11, 2021, for new borrowers and January 13 for second-time borrowers. The application window remains open through March 31, 2021. Read on to learn if you qualify and how to apply.
To check on eligibility and apply immediately, please visit our good friends at BlueVine today. They are ready to assist Swyft Filings customers.
How Is This Different From the First PPP Loan?
The first round of PPP loans saw some controversy, with millions and millions of dollars going to wealthy, well-known organizations like the L.A. Lakers and Shake Shack. Although some of these companies returned their loan when discovered, others did not, and people remained skeptical that the money was actually going to the small, local businesses that needed it most.
The current round of Paycheck Protection Program loans (PPP2) are changing some requirements to help ensure that struggling small businesses are receiving the aid promised. Some of these changes include:
- Maximum number of employees reduced from 500 to 300
- Maximum loan per business reduced from $10 million to $2 million
- Priority granted to minority-owned businesses and community lenders
- Emphasis on restaurants and other foodservice providers
- Business must show a 25% reduction in quarterly sales
First Draw and Second Draw Loans
If your business already received a PPP loan the first time around, you may still be eligible to receive a second loan. The SBA designates a business' first and second loans as first draw and second draw, respectively. The eligibility and application form is slightly different for each.
If you already received a first draw PPP loan, you must use the full amount before applying for a second draw loan. In other words, if you still have 20 bucks from your first loan, you must spend every penny before you can receive a second.
Is My Small Business Eligible for a PPP2 Loan?
To be eligible for this round of PPP loans, a business must have 300 or fewer employees (500 or fewer for first draw loans) and a 25% reduction in gross receipts in a quarter of 2020 compared with the same quarter in 2019. For example, if your Q2 receipts in 2020 were at least 25% lower than your Q2 receipts in 2019, your business should qualify.
Any business meeting the above requirements is eligible for a PPP loan. This includes:
- Sole proprietorships
- Self-employed individuals
- Independent contractors
- Nonprofit organizations
- Housing co-ops
- Agricultural producers, farmers, and ranchers
- Tribal businesses
What Can I Use the PPP Loan For?
As the full name implies, the Paycheck Protection Program loans are intended to cover payroll costs for a period of 8 or 24 weeks. However, there is some flexibility as to what counts as a payroll expense.
A business can use the loan for:
- Wages, salaries, and commissions
- Cash tips
- Parental, family, or medical leave
- Sick pay
- Dismissal or separation allowances
- Group healthcare benefits, including insurance premiums
- Retirement benefits
- State or local payroll tax
- Employer-provided group insurance benefits (life, disability, vision, and dental)
- Mortgage interest
- Worker protection costs related to COVID-19
- Uninsured property damage costs caused by looting or vandalism in 2020
- Some supplier costs and expenses for operations
How Do I Apply for the New PPP Loan?
As with the first round of PPP, you can apply through an SBA-approved lender, including banks and credit unions. If there's a reputable lender your business has a good relationship with, you can probably continue to go through them. If you don't have a financial institution you prefer to do business with, the SBA's Lender Match is a free online tool that helps connect small businesses with small, local lenders.
Filling Out the Application
The form will ask you to provide certain information, including:
- Business name
- Business contact information
- All owners with at least 20% equity in the business
- Business type (LLC, C-Corp, independent contractor, sole proprietorship, nonprofit, etc.)
- Employer Identification Number (EIN)
- Average monthly payroll costs (including wages, commissions, tips, parental leave, sick leave, and health benefits)
Take your time and be sure to double and triple-check every entry. It is not possible to change any info on your application after submitting it, and errors or typos can delay approval.
How Much Can I Borrow and How Can I Get the Loan Forgiven?
The amount of money most businesses can borrow from the PPP program is equal to 2.5 times its average monthly payroll for 2019. However, foodservice businesses can apply for a little extra — 3.5x the 2019 average monthly payroll. The most any business can borrow is $2 million.
PPP Loan Forgiveness
Borrowers can receive full forgiveness for the loan if they:
- Maintain employee and compensation levels
- Spend proceeds on payroll costs and other eligible expenses
- Use at least 60 percent of the loan on payroll costs
In the previous PPP loan program, receiving an Economic Injury Disaster Loan (EIDL) advance could have reduced the forgiveness amount. This is no longer the case in the new program. Expenses you incur to apply for forgiveness are now also tax-deductible.
You can apply for forgiveness anytime after spending the full amount of the loan and before its maturity date. The loan payments are deferred for 10 months after the last day of the coverage period. If you don't apply for forgiveness before that, you must start making payments to your lender.
Simplified Forgiveness Form
Businesses applying for loan forgiveness on a PPP loan under $150,000 can use a simplified form. All this form requires is:
- A description of the number of employees the business can retain with a loan
- An estimate of the amount of the loan that will be spent on payroll costs
- The total amount of the loan
Even if you don't get full forgiveness, the terms of the loan are fairly generous. All PPP2 Loans have the same terms regardless of lender or borrower.
- 1% interest
- 5-year maturity
- Deferred payments for 10 months after the end of the covered period (eight or 24 weeks)
- No collateral required
- No government or lender fees
What to Do Next
Small businesses are no strangers to hardship. There is no doubt that 2020 was a bad year for small businesses across the nation and around the world. Things didn't magically get better at the stroke of midnight on January 1, but they will get better. Hang in there.
The SBA is continually updating info on PPP loan procedures and availability. Please visit our good friends at BlueVine for the latest PPP information and help applying for your small business.