On December 27, the President signed the Consolidated Appropriations Act, 2021 (CAA 2021) which included increased funding for the Paycheck Protection Program and allows for previous borrowers to request a “second draw.” The recently enacted COVID relief bill permits PPP2 loans to be issued immediately.

Keep in touch with your lender to understand when they anticipate accepting applications.

PPP2 Highlights:

• Targets businesses who experienced a 25% decline in gross revenue in any quarter of 2020 over 2019
  • Special rules exist for new businesses; reach out to cares@brinkersimpson.com for more information if you need assistance determining if your new business is eligible
• Loan amount of up to 2.5X average monthly payroll costs for 2019 or trailing 12 months  (up to $2 million)
• Restaurant / hotels
  • Businesses with the NAICS code beginning 72 are eligible for 3.5X average monthly payroll and waived affiliation rules
• 501(c)(6) organizations are newly eligible
• Expands expenses eligible for forgiveness
• Program ends 3/31/2021

Estimates indicate at least 50% of first round PPP borrowers could be eligible for round 2.  As a result, we suggest preparing now to ensure you are able to submit as soon as the program begins accepting applications.

In order to be eligible for PPP2 you must:

• Have 300 or fewer employees
• Have used or will use full amount of first PPP loan
  • NOTE – some lenders are requiring forgiveness applications be submitted before they will accept an application for PPP2 – reach out to your lender to understand their policy
• Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019.

We advise creating a schedule to test your receipts on a quarterly basis to confirm you are eligible.  See example below where the second quarter confirms eligibility for PPP2.

Specific details are not yet available about what documentation will be required to demonstrate eligibility based on a decline in gross revenue.  We suggest compiling a quarterly profit and loss, bank statements, sales tax returns and / or other information to prepare for the application.  We will keep you updated as we learn more details about what lenders will require.

NOTE: The CAA 2021 relief bill included a special provision to allow borrowers with loans under $150,000 to submit a certification attesting to the require revenue loss.  However, those borrowers will be required to provide documentation to support eligibility with the forgiveness application. 

After determining eligibility, we suggest following a process similar to and compiling documents based on your first PPP application.

Preparing to apply for PPP2:

• Calculate average monthly payroll costs for 2019 or trailing 12 months including:
  • Newly added / clarified Group Life, disability, vision, and dental
  • Gross wages
  • Health insurance
  • Retirement contributions
  • State and local tax assessed on compensation
  • Include owner compensation based on entity type and 2019 earnings
• Create a summary sheet detailing payroll costs and benefits over the 12 months and the calculation to determine your requested loan amount (2.5X the average monthly payroll costs)
• Compile a file with support documents the lender may require including:
  • Payroll reports
  • Payroll tax filings
  • 2019 year end Payroll reports
  • 2019 Schedule C / Schedule K-1/ W-2  for owner compensation

PPP Overview / Refresher:

• Forgivable loans based on 2.5X monthly average payroll costs
• Forgivable amounts are not included in gross income and otherwise eligible expenses are deductible
• interest rate of 1% (CAA 2021 requires interest rate to be non-compounding)
• Maturity of 5 years.
• Loan payments deferred
• No collateral or personal guarantees are required
• No fees charged to lenders or borrowers
• 60% of the loan must be used for eligible payroll costs

Brinker Simpson & Company has a team utilizing the AICPA loan tool to assist our clients in preparing to submit their PPP2 applications.  Please reach out to cares@brinkersimpson.com if you would like assistance or if you have questions.