Now that Congress finally got around to it, a new round of the Paycheck Protection Program is resuming this week. If you’re a small-business owner and you want to take advantage of this financing, here’s what you need to know.
1. The program is largely the same.
Under PPP, small businesses can apply for loans to help them keep their employees working despite the pressures of COVID-19. The loan are forgiven when an employer documents that the money has been used properly. The program has proven massively popular. In the first round, an Inquirer analysis has shown, 81,000 businesses in the Philadelphia region received almost $10 billion from it, saving 787,000 jobs in Pennsylvania and South Jersey. That’s one out of every three jobs in the region.
2. The rules have been tweaked a bit.
The maximum loan is now $2 million (it was previously $10 million) although the payback period (five years) and interest rate (1%) for unforgiven amounts remain the same. Unless you’re in a certain industry (see below), the calculation to determine the size of your loan will still be up to 2.5 times your company’s monthly qualifying payroll and exclude yearly compensation of more than $100,000. You still need to get your loan not through the Small Business Administration but through an SBA approved lender.
3. The same core expenses — payroll and related costs such as group health insurance, rent and mortgage interest — are still included in the forgiveness calculation.
The mix of costs that can be used in the forgiveness calculation is still the same ratio: 60% for payroll, 40% for non-payroll. If you found that, because of rule changes, you could borrow more under a previous PPP loan, you can now go back to your banker and have that loan value changed, whether or not it’s been fully disbursed.
4. Unlike before, not every business is eligible for a loan.
Sure, you can get a first loan if you haven’t received one before or even a second loan. But to get a loan now you must show that your business has had revenue decline by at least 25% in any quarter of 2020 compared with its corresponding quarter of 2019. You also must have no more than 300 employees at a physical location, down from 500 in previous rounds. Certain firms, among them publicly held companies and businesses that started up after Feb. 15, 2020, are also excluded.
5. The rules for forgiveness have been changed and for the better.
The biggest selling point of the PPP loan program, as opposed to other stimulus plans offered such as the SBA’s Economic Injury Disaster Loan Program, is that PPP loans are forgivable. To get forgiveness you must incur certain expenses over an 8- or 24-week period (you can determine which). But with the new legislation, forgiveness has been made a lot easier.
For starters, if your business has a PPP loan that’s less than $150,000 then all you need to do to get forgiveness is to complete a new, one-page form that your lender will provide on which you will estimate the total amount of the loan spent on forgivable expenses. You will also need to represent that you have restored your full-time employees, salaries and wages to pre-Feb. 15, 2020, levels, otherwise your forgiveness will be reduced. No further documentation is needed, although the SBA reserves the right to audit you so you’ll want to retain that documentation for at least four years.
6. More expenses can now be included in the forgiveness calculation.
In addition to those expenses, you can include operations expenditures such as payment for software for human resources and accounting needs. You can include costs related to last spring’s riots that weren’t covered by insurance. You can include essential suppliers’ costs for contracts in effect before taking out the loan, including the costs of perishable goods. You can also include the costs of personal protective equipment and other money spent to comply with federal, state or local health guidelines due to COVID.
7. Restaurants and some other businesses are eligible for more loans.
If your business is in the restaurant and accommodation industry (those who were assigned a NAICS code beginning with 72) then you can get a loan of up to 3.5 times your average monthly payroll instead of the normal 2.5 times.
8. Billions are going to businesses in Low to Moderate Income Areas.
If your business is located in a Low to Moderate Income area (essentially a census tract that has a poverty rate up to 20%), then you get special treatment.
That’s because the new act set aside $15 billion for initial PPP loans and $25 billion for second PPP loans, up to $250,000 per loan, for small-businesses borrowers in those tracts with as many as 10 workers. In addition, $15 billion was set aside specifically for small community banks, small credit unions, and small agricultural credit institutions, and $15 billion has been targeted for community development financial institutions, certified development companies, minority depository institutions, and SBA Microloan intermediaries.
Of course, the greatest stimulus for small businesses isn’t forgivable loans. It’s customers. But, until the economy gets back to normal, the Paycheck Protection Program will provide needed relief to many desperate small businesses.