Small businesses will again have the opportunity to get forgiving loans under the Paycheck Protection Program, which received an additional $ 284 billion in funding as part of the $ 900 billion COVID-19 rescue and stimulus package . The new PPP loan program contains several new rules and hopes for a streamlined application and award process. Whether this is your first or second application for a PPP loan, here’s what has happened since the program was launched last March with the adoption of the. has changed Coronavirus Aid, Assistance and Economic Security Act (CARES).
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What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) was established on March 27th when President Donald Trump enacted the CARES Act. The PPP, administered by the United States’ Small Business Administration (SBA), gave companies waived loans to pay wages, salaries, rents, mortgages, and utilities. Eligible companies were entitled to up to 2.5 times their monthly payroll, with credits capped at $ 10 million each.
The demand for the loans was so great that the program has used up its $ 349 billion in funding in just 13 days, but Congress soon replenished it with additional funds. The program was also plagued by high profile incidents, such as large companies getting loans while small companies wordlessly waited for their application status. One of the most prominent incidents involved the burger giant Shake Shack is returning a $ 10 million loan; Although Shake Shack has more than 6,000 employees nationwide, no location has more than 500 employees, so the company was able to secure funding through the PPP.
New round of PPP could fix early missteps
Congress has imposed new restrictions on applicants to address the previous issues, including these criteria:
- Borrowers must have 300 or fewer employees.
- Borrowers must demonstrate a 25 percent year-over-year reduction in quarterly income.
- The maximum loan amount is $ 2 million.
“These changes prohibit public companies from obtaining PPP loans,” said Chris Hurn, founder and CEO of the SBA lender and PPP participant Source. “It is an attempt by Congress to further shrink the universe of potential second-drawing PPP borrowers … They are trying to help small businesses that really are small Companies because they are the ones hurt the most. “
Improved application process
According to Greg Ott, CEO of Navi, a company that helps connect small businesses to lenders, is expected to have a smoother application process this time around, and the SBA’s improvements to the back-end infrastructure should keep the system from crashing during heavy traffic.
“SBA uses a back-end called E-Tran that is designed to process around 5,000 loans per month,” said Ott. “[In the first round], they tried to make 5 million in a month. We believe that these problems have largely been resolved; They have created higher technical scalability that allows the lenders themselves to create a much more seamless process. “
The application process could be extremely simple for companies that have previously applied for a PPP loan, Ott added. Companies applying for the first time will need supporting documents, but this process should also be accelerated from the beginning of this year.
“If you didn’t get a loan the first time around, you still need to show some documents to review the drop in sales and your payroll,” Ott said. “Either way, more of this will be done online and digitally than with the first wave.”
More flexible approved uses for funds
In addition to restricting admission requirements, Congress has expanded the uses of the funds, Ott said. So far, the excusable expenses have only included rent or mortgages, wages and salaries and ancillary costs. Uses covered for PPP funds include buying personal protective equipment (PPE) or installing partitions and barriers to improve the safety of customers and employees during the ongoing COVID-19 pandemic.
“There is more flexibility in how you can use the loan to really keep your business going,” said Ott. “The focus is still on payroll, but there is more flexibility.”
Optimized award process
The new round of PPPs is expected to streamline the lending certification process for loans of $ 150,000 or less. This request for forgiveness is expected to be a single page, although the SBA has not yet released specific documentation.
“They are definitely working hard to further streamline forgiveness, especially on smaller dollar loans,” Ott said. “For loans of $ 150,000 and less, there will be essentially a unilateral application process.”
Tax deduction for granted PPP loans
Congress has instructed the IRS to allow businesses to deduct waived loans from their tax bills. Previously, the IRS claimed that the forgiveness prevented companies from deducting the loan amount for tax purposes, making bookkeeping difficult and increasing the tax burden for companies that would have received a PPP loan.
“This makes it a lot easier to talk to your CPA and you don’t have to do weird calculations on your tax return,” said Healy Jones, vice president of financial planning and analysis at Kruze Consulting.
Small businesses have priority in new round of PPP funding
There is optimism that these changes will not only increase the flow of funds to really small businesses and allow them to use the money for a wider range of purposes, but will also result in a simpler application process.
The application deadline for the new round of PPP loans has not yet opened. The SBA will have 10 days from Dec. 27 to produce regulatory guidance on the application process and lenders will then need to prepare their own processes before borrowers can be approved and funds distributed.
“The funds are not yet processed by any lender,” said Ott. “The SBA has to publish further guidelines. They have 10 days to do this. Then the lenders first have to decide whether to participate.”
Thereafter, borrowers can submit applications through participating lenders.
What Should Small Businesses Do When Preparing For PPP Applications?
If you want to apply for a PPP loan in the new funding round, you should consider a few things. While the application deadline has not yet opened, there are a few important steps you can take in the meantime.
1. Interrupt the ongoing award certification process.
If you have not yet been approved for PPP loan issuance, suspend your waiver certification process immediately. Now that more approved uses of PPP funds have been added and the waiver process for smaller loans has been streamlined, your company may need to recertify under the new rules.
“More experienced borrowers have withheld their requests for forgiveness to lenders because they expect it to be much more streamlined,” Hurn said.
Pausing award certification also allows employers to verify retention credit that was not previously available to PPP borrowers.
2. Explore Employee Loyalty Credit.
If your company has fewer than 100 employees and has suffered economic damage in the form of a government-mandated shutdown or a 20% year-over-year decrease in gross revenues in a single quarter, you are eligible for both the PPP loan and employee retention Recognition. The Loyalty Loan is $ 7,000 per employee per quarter and reduces a company’s payroll tax burden.
“The Loan Loan is now available to people who have also applied for a PPP loan,” said Jones. Basically, it allows you to take a meaningful percentage of an employee’s wages and reduce your payroll tax burden. Nobody has done this before because you can choose either PPP or Loyalty Credit. It would lower your expenses or your burn rate very quickly. You should definitely go with it Talk to your CPA about it. “
3. Prepare all the documents required for the application.
Companies applying for the PPP loan are required to review their income statements and provide supporting documents when applying for a loan. If you have previously been approved for a PPP loan, it is likely that the information you previously submitted is still valid. If you have not yet applied for a PPP loan, you can speed up the application process by submitting these documents in good time.
“The biggest thing a business owner can do is determine if they have at least one quarter in 2020 in which they can show a 25% or greater reduction in sales,” said Hurn. [Read related article: How to Get Your Business Loan Application Approved]
4. Identify a participating SBA lender.
Some lenders who participated in the first round of PPP are expected to pull out in this new round. So check with your existing bank or SBA approved lender to see if they will participate. Coordinate with them in advance to ensure your application will be ready as soon as the SBA releases further guidance. In addition, you can submit multiple applications to different lenders, so explore your options as well See which lenders are ready to work with you.
“There are no restrictions on submitting multiple applications,” said Ott. “Don’t put all your eggs in one basket with one lender, but in parallel with several lenders. Ultimately, you can only get one loan approved, but it is up to you to decide how aggressively you apply. The downside is you multiply filling out applications. “