The Paycheck Protection Program (PPP) is back and now includes the option to apply for a second draw of funds. Now, any eligible business can apply for a PPP loan, whether it’s their first time applying for the small business relief program or they’re seeking another slice of financial support after receiving a first loan. The application deadline is March 31.
But just because more money is available, does that mean you should apply?
“As long as you qualify for the second draw and you’re still in business with employees and normal operating expenses, it is highly beneficial to you to take the money,” says Benjamin Johnston, chief operating officer of Kapitus, a provider of small business financing. The company, through partnerships with Cross River Bank and several others, helped hundreds of companies with the application process during the two rounds of PPP funding.
Here are four reasons why a second PPP loan can benefit your bottom line:
1. There’s More Money Available for the Hardest-hit Sectors
All the pivoting in the world isn’t enough for businesses that rely on crowds of people to regain their financial footing. The restaurant and hospitality industries have been hit particularly hard. The latest legislation aims to provide a bigger helping hand to those applying for a second PPP loan.
Any eligible business in the accommodations and food services sectors that applies for a second draw is eligible to receive up to 3.5 times its average monthly 2019 or 2020 payroll costs, up to $2 million. Other types of industries can only apply for a second draw loan of up to 2.5 times their average monthly 2019 or 2020 payroll costs, up to $2 million.
Already, these improved second loan terms have proved appealing to those who qualify.
“About 90% of the volume we’ve seen so far are second loans,” says Chris Giamo, head of commercial banking at TD Bank. “I think that emphasizes that the hardest-hit companies really needed another round of stimulus here, and anecdotally what we’re hearing is that most of the second draw applications are from restaurants and the hospitality and live-events industries.”
2. Loan Forgiveness Is Supposed to Be Easier
Since the inception of the PPP as part of the March 2020 CARES Act, the rules and eligibility qualifications surrounding the forgivable loan program have undergone multiple iterations and clarifications in an effort to expand the definition of who can qualify for a loan, as well as expanding the criteria for loan forgiveness.
The most recent guidance from the Small Business Administration (SBA) says that forgiveness on a second draw PPP loan will be based on whether:
Your business uses the money within an eight- to 24-week covered period following loan disbursement
You have a maximum of 300 employees (first draw loans are capped at a maximum of 500 employees)
The loan is used for at least 60% of your payroll costs, and the number of employees on the payroll and their compensation levels remain the same during the covered period you’re using the money
You can show your business has experienced at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
You’re requesting no more than $2 million; the amount granted will be based on an applicant’s payroll
And, with the passage of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) in December 2020, the IRS and Treasury confirmed that a forgiven PPP loan is not considered taxable income, eliminating concerns there could be a tax burden on those who took PPP funds.
3. The Forgiveness Form for Smaller PPP Loans Has Been Simplified
The IRS on January 19 released the most streamlined version yet of its forgiveness application: the two-page Form 3508S, which allows businesses that received PPP loans of $150,000 or less to self-certify that they used the funds for eligible expenses.
This form was intended to help smaller businesses that may have found the prospect of both applying for a PPP loan and fulfilling the previous paperwork requirements for forgiveness too overwhelming to pursue.
Know that even with self-certification, a business may still be asked to produce proof of a reduction in revenue up to four years after applying for forgiveness if there’s an audit of their loan. The second draw loan forgiveness application specifically states that a PPP loan recipient “must retain all records necessary to prove compliance with Paycheck Protection Program Rules for four years for employment records and for three years for all other records.”
4. If You Don’t Qualify for Forgiveness, It’s Still a Low-risk Loan
Even if you don’t qualify for full or partial loan forgiveness, applying for a PPP loan is still one of the best bargains for a business seeking a cash infusion. “The thing to keep in mind is the beneficial aspect to the interest rate, it is still 1%,” says Brian Marks, a professor of economics at the Pompea College of Business at the University of New Haven in Connecticut.
You’ll need to repay a non-forgivable PPP loan within five years. You also can pay it off early without penalty or defer starting repayment of your loan for up to 10 months after you received your funds.
Original Source: Forbes