PPP Loans - Round 2

PPP Loans - Round

By Wayne M.  Lenell, CPA,  PhD

On January  11, 2021, the SBA opened the second  round of Payroll  Protection  Program  (PPP)  loans.  Those who received loans during the first opportunity  in 2020,  now have a  second  chance to apply for additional forgivable loans.  Though very similar to the first  PPP, the second  program  has a few notable differences.

The most significant difference  between the first and second  rounds of the  PPP  involves eligibility.  The 2021 PPP requires that a  small  business or not-for-profit organization  demonstrate that it faced a  financial  hardship as evidenced  by a  25% or more drop in revenue either for the  full year of 2020 compared  to 2019,  or for at  least

one quarter in 2020 compared  to 2019.  For example,  if a business  suffered  a  25% loss in revenue during the second quarter of 2020 compared to the  second  quarter of 2019, the  business would  qualify  for a  2021 PPP  loan even if the  business recovered the  loss of revenue in subsequent quarters.  Nevertheless, this  new requirement will eliminate the  opportunity for many small  businesses and not-for-profit organizations to qualify for PPP  loans in 2021.

The business  must  have no more than  300 employees and the  business must  have used, or will  use, the full amount of the first  PPP  loan.  The entity must  have been in business on February  15, 2020 to qualify, so  newly formed businesses since  February  15, 2020 cannot apply for PPP  loans.

The 2021 PPP expanded the  list of expenses eligible to satisfy the  loan  proceeds.   Like the first  round, the  PPP loan  proceeds may be used to fund  payroll costs,  payroll taxes, employee  benefits,  mortgage  interest,  rent, and utilities,  but the 2021 loan  may also be used:

•        To fund  worker  protection costs related  to COVID-19,

•        To cover uninsured  property  damage costs caused by looting or vandalism  during 2020,

•        And to cover certain supplier  costs and expenses for operations.

The last category,  listed  above,  seems to encompass  most other expenses of a  business.  The definition  of a "supplier  cost"  is an expenditure  made by an entity to  a  supplier of goods for the supply of goods that are essential to the  business operation  or that is made pursuant to a  contact,  order,  or purchase  order.

At least 60% of the  2021 loan  proceeds must  be used to fund  payroll  (including  payroll taxes and employee benefit costs),  with  the  remainder being satisfied  with  the other aforementioned  categories of expenses.

Most  businesses may apply for  up to 2.5 times the average  monthly payroll for either calendar year 2019 or

2020.  The payroll calculation  includes  payroll taxes and employee  benefits.  The maximum  loan  request  is $2 million  per business or not-for-profit entity.

Businesses classified in the  "accommodation  and food services sector,"  may borrow up to  3.5 times the 2019 or

2020 average monthly payroll costs up to $2 million.  The SBA is using NAICS Codes beginning with 72 as those qualifying for the higher payroll multiplier.  The two most common 72XXXX NAICS Codes are "Full-service restaurants" Code Number 722511, and "Limited-service restaurants" Code Number 722513.

Time is of the essence. The deadline for applying for a 2021 PPP loan is March 31, 2021.