Any small company owner will tell you that 2020 was a rollercoaster. COVID-19 caused the closure of about 97,000 small companies. However, it is projected that Round 1 of PPP loans assisted 5 million small enterprises in surviving the economic downturn.
Whether they've previously taken a PPP loan or this is their first, small-business operators may use the PPP Round 2 loans to continue their operations. PPP loans can also cover mortgage interest, lease payments, utilities, employee protection costs associated with COVID-19, uninsured property damage, supplier costs, and operational expenditures.
If you are operating a small business and want to learn more about the application procedure and the implications of PPP Round 2 loans, keep reading.
Topics covered in the article:
- How do you apply for the new PPP loan?
- What can you use a PPP loan for?
- Are you eligible for the new round of PPP?
- What if you didn’t get a PPP loan in the first round?
- How is the PPP Round 2 loan calculated?
- Will the PPP Round 2 loan be forgiven in whole or partially?
- Do you have to pay taxes on my PPP loan?
- PPP loan maturity and deferral period
Let’s Start!
How can you apply for the new PPP loan?
Contact your local lender to apply for the new PPP loan. Typically, financial institutions will have a banker on hand who has been schooled in the application procedure. Round 1 and Round 2 loans have the same terms and conditions, and the loans are the same regardless of which lender you use.
To complete the procedure, lenders want business records. We've put up a list of some papers you'll require
- Bank statements for the last 12 months are required
- 941 tax records for the Fiscal Year 2019-2020
- 944 tax filings for 2019
- Employee history for the prior year
Your documentation will be slightly different if you work as an independent contractor. You need to submit some additional documents like:
- 1099's
- 1040 Schedule C
- Annual cost report
You should also carry suitable identification. Finally, owners with at least 20% ownership must be included.
What can you use a PPP loan for?
To have your PPP Round 2 loan forgiven entirely or partially, you must spend the loan money on forgiving costs. For example, the first PPP round included electricity and heating, housing, wages, company medical insurance, and other qualified expenses, which are paid again in this PPP Round 2.
The PPP Round-2 funding covers four new categories of reimbursed expenses:
- Operational costs: They include cloud computing, human resources, and accounting software
- Property damage costs: For damages incurred in 2020 because of public disturbances that your company's insurance did not cover
- Supplier costs: Payments made to suppliers before taking out the PPP Round 2 loan necessary to keep your firm going
- Worker safety expenditures: They include PPE and other investments necessary to comply with local and federal COVID-19 business rules
It's important to note that company taxes are unapproved spending. If you're unsure if PPP Round 2 loans will safeguard a cost, check with your lender or a tax advisor.
Introduction to PPP Round 2
The Paycheck Protection Program (PPP) was created by the US government in response to the COVID-19 pandemic to provide relief to small businesses. PPP Round 2 was launched in January 2021 and has since been extended multiple times, with the latest extension running until March 31, 2023. Here are some key points to know about the PPP 2023 Round 2:
- Purpose: PPP Round 2 in 2023 is designed to help small businesses continue to weather the ongoing effects of the COVID-19 pandemic by providing them with low-interest loans to cover eligible expenses.
- Loan amount: The maximum loan amount for PPP Round 2 in 2023 is $2 million, which is the same as the maximum loan amount in previous rounds. The loan amount is based on the average monthly payroll costs of the business.
- Loan terms: PPP Round 2 loans have a maturity of five years and an interest rate of 1%. Borrowers do not have to make payments for the first 10 months, and there are no prepayment penalties.
- Loan forgiveness: Like previous rounds, PPP Round 2 loans in 2023 may be forgiven if the borrower uses at least 60% of the loan proceeds for payroll costs, and the remaining 40% for eligible non-payroll expenses such as rent, utilities, and mortgage interest. Borrowers must apply for loan forgiveness through their lender.
- Priority for underserved communities: PPP Round 2 in 2023 includes a set-aside of $15 billion for loans to be made by community financial institutions (CFIs), which serve underserved and minority communities.
- Application deadline: The application deadline for PPP Round 2 loans in 2023 is March 31, 2023, or until funds run out.
Are you eligible for the new round of PPP?
Companies with 300 or fewer workers that saw a 25% decline in revenue in any quarter from 2019 to 2020 are eligible for the PPP Round 2. This entails a 25% or more decrease in gross income from any quarter in 2020 compared to the same quarter in 2019 or for the year 2020 compared to the year 2019.
In contrast to the first wave, new entity kinds, such as:
- Trade organizations
- Commerce chambers
- Non-profits or government agencies with 300 or fewer workers who engage in destination or tourism promotion
- Owners who have a criminal conviction that is not connected to fraud
- Owners who are behind on their school debts
- Non-citizens who live in the United States, such as those with a Green Card or a visa
This round, like the previous one, includes:
- Not-for-profit organizations
- Cooperative housing
- NGOs for veterans
- Individuals working for themselves
- They are the sole proprietors
- Contractors on their own
- Businesses that operate seasonally
This extra round of PPP further clarifies the definition of seasonal enterprises for the accounting purposes of the PPP loan amount. As a result, seasonal firms who run for only seven months of the year or earn less than one-third of their earnings in any six months of the preceding year can have their PPP loan based on 12 weeks in 2019 or 2020.
Entities primarily involved in political operations or lobbying, publicly listed firms, and entities substantially owned by members of Congress are also excluded.
In the PPP Round 2 loan application, you need to demostrate you require the cash for business operations and that your company has not been permanently closed down. In addition, if you've already accepted the first PPP loan, you need to confirm whether you used or intended to use the first PPP loan for qualified costs before or on the day you get your second loan.
Loan Amount and Terms of the PPP Loan
Here are some key points to know about the loan amount and terms of the PPP loan 2023 Round 2:
- Eligible expenses: PPP Round 2 loans may be used to cover eligible expenses such as payroll costs, rent, utilities, mortgage interest, and certain other expenses related to COVID-19 health and safety guidelines.
- Eligibility requirements: To be eligible for PPP Round 2 in 2023, businesses must have 300 or fewer employees, and have experienced a 25% reduction in gross revenue in any quarter of 2021 compared to the same quarter in 2019.
- Second draw loans: PPP Round 2 in 2023 also includes second draw loans for businesses that have already received a PPP loan. To be eligible, businesses must have 300 or fewer employees, and must have used or plan to use the full amount of their first loan.
What if you didn’t get a PPP loan in the first round?
Previous recipients of PPP loans and new applicants are eligible for a second-round PPP loan.
If you have previously gotten a loan, you must have used or intended to spend your entire first PPP. You must also show a 25% decrease in gross collections in 2020 compared to the same quarter in 2019 or for the year 2020 compared to 2019.
Documentation Required for PPP Loan Application
To apply for a PPP loan, borrowers must provide certain documentation to their lender. Here are some key points to know about the documentation required for a PPP loan in 2023:
- Payroll documentation: To be eligible for a PPP loan, borrowers must have been in operation on February 15, 2020, and have employees to whom they pay salaries and payroll taxes. Borrowers must provide payroll documentation, such as payroll tax filings, payroll reports, and bank statements, to demonstrate their eligibility.
- Tax documentation: Borrowers must provide documentation of their federal tax filings, including Forms 941 and 940, and state and local tax filings.
- Business formation documentation: Borrowers must provide documentation of their business formation, such as articles of incorporation or organization, partnership agreements, or business licenses.
- Ownership documentation: Borrowers must provide documentation of their ownership, such as shareholder agreements or operating agreements.
- Financial statements: Borrowers may be required to provide financial statements, such as income statements, balance sheets, and cash flow statements, to demonstrate their financial need for the loan.
- Use of funds documentation: Borrowers must document how they intend to use the PPP loan proceeds, and how they will use the loan to retain or rehire employees.
- Other documentation: Lenders may have additional documentation requirements, such as proof of insurance coverage or lease agreements.
- Accuracy of documentation: It is important for borrowers to provide accurate and complete documentation to their lender, as any inaccuracies or omissions could result in the loan being denied or the borrower being subject to penalties.
- Recordkeeping: Borrowers should maintain records of their PPP loan and use of funds for at least six years, as the Small Business Administration may conduct audits to verify compliance with the program requirements.
- Assistance with documentation: Borrowers who need assistance with gathering and submitting documentation for their PPP loan application can contact their lender or a Small Business Administration-approved PPP lender.
How is the PPP Round 2 loan calculated?
If you haven't already taken out a PPP loan, you may be eligible for a first or initial draw. You can borrow up to $10 million for first-time PPP borrowers, or 2.5 times your typical payroll cost.
If you apply for PPP Round 2, you may be eligible for a second draw, less than $2 million or 2.5 times your average monthly payroll expense in 2019, 2020, or the year before you received your PPP loan. For instance, it is 3.5 times your average monthly payroll expenses if your company's code begins with 72.
Company owners who submit a Form 1040 Schedule C can select whether they compute their PPP Round 2 loan on net profit or gross revenue.
PPP Round 2 vs. Round 1: What's Changed?
In 2023, the PPP has been renewed for a second round of loans, but with some important changes from the first round. Here are some key differences between PPP loan round 2 and round 1:
- Eligibility: In the first round of PPP loans, only businesses with 500 or fewer employees were eligible. In PPP loan round 2, the program has been expanded to include businesses with up to 300 employees, as well as sole proprietors, independent contractors, and certain self-employed individuals.
- Loan amounts: In PPP loan round 1, the maximum loan amount was $10 million. In PPP loan round 2, the maximum loan amount is $2 million.
- Targeted funding: PPP loan round 2 includes a targeted funding component for businesses in low-income communities and those that have suffered significant revenue losses.
- Use of funds: PPP loan round 2 allows borrowers to use loan proceeds for additional expenses beyond payroll costs, including operations expenses, property damage expenses, supplier costs, and worker protection expenses.
- Simplified forgiveness: PPP loan round 2 includes a simplified forgiveness process for loans of $150,000 or less, which involves completing a one-page certification and providing documentation of eligible expenses.
- Second draw loans: PPP loan round 2 allows eligible borrowers to apply for a second draw loan if they have used up their first PPP loan and can demonstrate a revenue reduction of at least 25%.
- Covered period: The covered period for PPP loan round 1 was either 8 or 24 weeks, depending on when the loan was disbursed. PPP loan round 2 extends the covered period to between 8 and 24 weeks, giving borrowers more flexibility in how they use the loan proceeds.
- Timing: PPP loan round 1 ended on May 31, 2021, while PPP loan round 2 began on January 11, 2021 and is set to end on March 31, 2023.
- Documentation: While documentation requirements for PPP loan round 2 are similar to those for round 1, lenders may have additional requirements, and borrowers should be prepared to provide accurate and complete documentation to support their loan application and forgiveness process.
- Assistance: Borrowers who need assistance with PPP loan round 2 can contact their lender or a Small Business Administration-approved PPP lender for guidance and support throughout the application and forgiveness process.
Will the PPP Round 2 loan be forgiven in whole or partially?
The loans for the PPP Round 2 forgiveness are up to $2 million, and you can pick a covered time of eight to 24 weeks throughout the forgiveness procedure.
If the loan amount is less than $150,000, the beneficiary must complete a one-page form and submit specific certificates to the lender. Among the certificates are:
- The number of qualified staff kept by the company
- The loan amount is paid off through payroll expenditures
- The entire loan
If your debt exceeds $50,000, your loan forgiveness may be decreased depending on the number of workers and salaries that declined by over 25%. Borrowers must keep relevant job records for four years and other data for three years. Records for loans exceeding $150,000 must be kept for six years. The SBA may subsequently evaluate and audit any PPP loan records for fraud in all circumstances.
To be eligible for complete forgiveness, at least 60% of the PPP loan must be spent on payroll expenditures, precisely as it was in the first round of PPP. Loan payments are no longer delayed if borrowers do not ask for forgiveness within 10 months following the last day of the covered term. You should contact your lender for the paperwork.
Alternative Funding Options for Small Businesses
Here are some alternative funding options for small businesses:
- Economic Injury Disaster Loans (EIDL): These low-interest loans are available to small businesses and nonprofits that have suffered economic injury as a result of a disaster, including the COVID-19 pandemic. EIDLs can be used for working capital and normal operating expenses.
- Grants: There are various grants available for small businesses, including those offered by local, state, and federal governments, as well as private foundations and corporations. These grants may have specific eligibility criteria and may require an application process.
- Crowdfunding: Crowdfunding is a way to raise funds from a large number of people, typically through an online platform. Small businesses can use crowdfunding to raise funds for specific projects, products, or services.
- Small Business Administration (SBA) loans: In addition to PPP and EIDL, the SBA offers other loan programs, such as the 7(a) loan program, which can be used for working capital, equipment purchases, and other business expenses.
- Business lines of credit: A business line of credit is a revolving credit account that allows you to access funds as needed. This can be a good option for businesses that need flexibility in their funding.
- Invoice factoring: Invoice factoring is a way to access cash quickly by selling your outstanding invoices to a factoring company. The factoring company will typically pay you a percentage of the invoice amount upfront, and then collect the full amount from your customers.
- Friends and family: While not a formal funding option, many small businesses turn to friends and family for financial support. This can be a good option if you have a strong network of supporters who believe in your business.
It's important to note that each of these funding options has its own eligibility criteria, application process, and repayment terms. Be sure to do your research and consider all options before making a decision.
Do you have to pay taxes on my PPP loan?
Congress enacted the CRRSA Act in December 2020, which addresses taxation concerning PPP Round 2 loans. Therefore, if you take out a PPP loan and achieve forgiveness, the loan is fully tax-free and not deemed taxable income.
The U.S. Chamber of Commerce has generated an official list of small business COVID-19 emergency loans, outlining changes to taxes and PPP loans after the December 2020 law, providing more up-to-date information on PPP loans. You should also note that PPP Round-2 loans cannot be used to pay business taxes.
PPP Loan Maturity and Deferral Period
The PPP Round-2 loan has a five-year maturity.
The deferment period extends until the amount of debt forgiveness is established. This means you don't have to make payments until you know how much your debt will be forgiven. Borrowers who do not petition for debt forgiveness must begin making payments on their loans after 10 months from the end of the covered period.
That's all the information you need to know about PPP Round 2. Now, let's look at some of the most frequently asked questions about PPP Round 2.
Frequently Asked Questions
What is the format of a PPP Round 2 loan application?
This depends on where you apply; various lenders have varying application criteria, but eligibility, loan conditions, and forgiveness will remain consistent from lender to lender.
Where can I get a list of lenders for PPP Round 2?
Inquire with local banks and lenders to see whether they support the PPP initiative. Remember that lenders offering first-draw loans may be more willing to distribute loans than lenders offering second-draw loans.
Can I apply for another PPP loan if I return some or all of my PPP loan?
Yes. The SBA must issue instructions to lenders on permitting borrowers who have repaid loans to access PPP financing within 17 days of the bill's implementation.
Do I immediately qualify for 3.5x payroll if I own a hotel or restaurant?
Yes. According to the Economic Aid Act, any enterprise with a NAICS code beginning with 72 is eligible for a loan of up to 3.5 times payroll.
With that, we have reached the end of the article. So, let's take a quick summary of everything we have learned in this article about PPP Round 2.
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Key Takeaways
- Private lenders and credit unions make PPP loans, supported by the Small Business Administration (SBA).
- The PPP's primary goal is to encourage small firms to keep workers on the payroll and rehire laid-off workers who lost their salaries because of COVID-19 interruptions.
- As long as firms use their loan funds wisely, the entire amount can be forgiven.
- To have your PPP Round 2 loan forgiven entirely or partially, you must spend the loan money on forgiving costs.
- Companies with 300 or fewer workers that saw a 25% decline in revenue in any quarter from 2019 to 2020 are eligible for the PPP Round 2.
- Previous recipients of PPP loans and new applicants are eligible for a second-round PPP loan.
- If you have previously gotten a loan, you must have used or intend to spend your total first PPP.
- If you haven't already taken out a PPP loan, you may be eligible for a first or initial draw. You can borrow up to $10 million for first-time PPP borrowers, or 2.5 times your typical payroll cost.
- The loans for the PPP Round 2 forgiveness are up to $2 million, and you can pick a covered period of eight to 24 weeks throughout the forgiveness procedure.
- If you take out a PPP loan and achieve forgiveness, the loan is entirely tax-free and not deemed taxable income.
- The PPP Round-2 loan has a five-year maturity.
- The deferment period extends until the amount of debt forgiveness is established. This means you don't have to make payments until you know how much your debt will be forgiven
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