Any small business owner will attest to the fact that 2020 was an unprecedented year. Over 97,000 small businesses closed due to COVID-19. Round 1 PPP loans are estimated to have helped 5 million small businesses survive the economic mayhem. Now that round 2 PPP loans have finally been approved — there are a lot of questions surrounding them.
If you're a small business owner, financial officer or anyone curious about the application process and ramifications of PPP loans, then read on.
How to Apply for PPP Round 2
The 77-day window for PPP loan applications opened on Jan 13, 2021, and closes on May 31, 2021 . To apply, contact your nearest lender. Financial institutions will typically have a banker available that's trained in the application process. Round 1 and 2 loans have the same terms and conditions, and the loans remain the same regardless of which lender you choose to go through.
Lenders require business records to complete the process. We've compiled a list of some of the documents you'll need.
- Bank statements for the previous 12 months.
- 941 tax records for 2019-2020
- 944 tax filings for 2019
- Employee history for the previous 12 months.
If you're an independent contractor, then your paperwork looks a little different.
- 1040 Schedule C
- Annual expense report
- 1099's
You'll also want to bring proper identifications. Lastly, owners with at least 20% ownership will need to be included in the process.
How Much Money Does My Business Qualify for?
The amount your business receives is based on your average employee costs prior to the pandemic. The loan will be 2.5x that average and covers up to 10 million in expenses. Businesses in the service and restaurant field qualify for 3.5x the monthly average.
What Businesses are Eligible?
- Businesses with 300 or fewer employees.
- Businesses that can prove at least 25% loss in 2020, compared to prior years.
- Businesses that applied for 1st round loans (with restrictions).
If your business is filing bankruptcy, you can still apply for a round 2 PPP loan. If your business includes live venues such as art, filmmaking, musical performances, etc you too can qualify for a PPP loan. However, if your live venue business has already been approved for a Shuttered Venue Operators loan, then it's no longer eligible for a PPP assistance.
What If I Received PPP Round 1?
You may still qualify for round 2 PPP loans, but only if you've returned the excess funds from round 1 or have spent or plan to spend all of the original loan amount. Worth noting, you'll be disqualified from applying for 2nd round PPP if it's discovered any of the expenditures were for unauthorized uses. Lastly, unlike first time PPP loan applicants who qualify for up to 10 million, 2nd time applicants have a max of 2 million.
What Can I Purchase with PPP Round 2 funds?
Authorized PPP use is decided by congress. 1st round PPP loans could only be used for absolutely dire necessities such as employee expenses, rent/mortgage payments and utilities. Congress added a bit more flexibility with 2nd round loans while also building in protection for front line employees .
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COVID-19 Prevention:This cost includes any equipment used to adhere to COVID-19 guidelines implemented on Mar 1, 2020, onward. Sanitizers, masks, spacing, etc. Essentially, any reasonable, verifiable safety precaution can be included in this expense. This also includes equipment that had to be replaced due to covid such as items that suffered failure due to constant sanitization or use.
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Supplier expenses:If your business requires 3rd party suppliers for office equipment, food ingredients, parts, etc, then the costs are covered by the loans. This includes suppliers that were vital to operations during the pandemic that you no longer use. For example, if you used a supplier during the first part of quarantine but no longer required their services, then the original costs are still valid for PPP coverage.
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Business repair costs: 2020 saw a rise in the numbers of lootings, vandalism and property damage. If your business was affected by any of the above, then the PPP funds can be used to repair the damages. This authorization only applies if the costs were not covered by insurance or settled privately.
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Everyday Expenses:Any purchases deemed necessary to your business's daily demands is considered within the realm of PPP use. Everyday expenses is the only authorized use that doesn't use the effects of COVID-19 as a qualifier.
Worth remembering, business taxes are considered unauthorized expenses. If you're uncertain if PPP loans protect an expense, then speak with your lender or tax specialist.
How Will PPP Round 2 Affect Your Taxes?
There are some hefty changes to business tax with the introduction of PPP laws. First, expenses paid for with PPP loans are now considered tax-deductible. This new law covers past and future loans. Loan forgiveness can be either partial or full.
To qualify for 100% forgiveness:
- At least 60% of the PPP funds must be spent directly on payroll for a period of 8 or 24 weeks, depending on your loan conditions
- The other 40% must be spent on authorized expenses
- Partial forgiveness is possible by spending at least 60% of the funds on payroll
Any unforgiven expenses must be paid in full. Other business protection programs, such as the economic injury disaster loan or EIDL, do not affect the amount of PPP loan forgiveness. A business can receive both and be forgiven 100%. However, all expenses must be proven.
Businesses can also receive the employee retention credit in combination with PPP and still be eligible for 100% forgiveness. Any amount not spent on authorized goods and services or, alternatively, any amount spent on duplicate expenses aren't covered under forgiveness.
Duplicate expenses refer to writing in the same expense on both loans, for example, writing in the same monthly bill payments on both loans. When done intentionally, it's seen as a form of tax fraud. The term duplicate expenses wouldn't apply to a business exhausting one loan with payroll costs and then doing the same with the other.
If your loan is 150,000 or less, there's a simplified forgiveness form. It's only one page and includes employee retention, loan amount and the total amount spent solely on the payroll. You'll need to save all tax documentation related to your PPP loan for up to 4 years. There's no doubt that the IRS will be conducting further reviews of almost all PPP loans for discrepancies in the years to come.
Need Help Navigating PPP Round 2?
Whether your business is booming (and we hope it is) or going through hard times, Bookkeeper360 is here to help. Taxes are complicated. That's why we love 'em. That's also why quality accounting and tax services are valuable. We pour over the data, so you don't have to. If you're a business owner, you've got enough on your plate to maintain. We'll be a trusted financial partner so you can do everything else.