The rules regarding the Paycheck Protection Program (PPP) are hard to understand. We are working with clients daily who are confused about the rules, and I don’t blame them one bit.
Here’s an update to help you get some clarity on how to navigate the PPP program.
Can you apply for the First Draw PPP?
If you have not yet received any money from the PPP program, you can still apply for the First Draw PPP.
The deadline is May 31st, though you will want to apply asap! You can apply even if you don’t have employees. You must have been in business by February 15, 2020.
The money you get from the PPP is not taxable income at the federal level, but may be at the state level, and you won’t have to pay it back. For example: If your gross income was $48,000 you would get $10,000! Apply now through your local bank or an online lender. If you do not know which lender is best for you, contact us for a free no-obligation discussion
Can you apply for the Second Draw PPP?
You can only apply for the Second Draw if you previously received First Draw PPP money. To be eligible for the Second Draw you must show at least a 25% decline in your gross income from 2019 to 2020. You can show this on an annual basis or for any one quarter of the year. So, if your gross income was 30% lower in the second quarter of 2020 versus the second quarter of 2019, you qualify.
Gross income includes any grants that you have received. Unemployment benefits are not gross income. PPP and Economic Injury Disaster Loan (EIDL) money as well as stimulus checks from the federal government are not considered gross income.
You will need to show documentation that you meet this rule. This can be shown with monthly bank statements, an Excel spread sheet, etc. It is important to be able to prove you meet the 25% rule. You may or may not be asked to show these documents at the time you apply for the Second Draw PPP, but your lender is likely to ask for this before you can apply for forgiveness. If you can’t prove you meet the 25% rule, you’ll either have to return the money right away, or pay it back as a 1% loan over 5 years.
When can you apply for the Second Draw PPP?
You must allow eight weeks to pass from the time you get the First Draw PPP until the Second Draw PPP is disbursed to you. You can apply for the Second Draw before the 8 weeks has passed. However, if you do so, you want to make sure you don’t accept the Second Draw money until after 8 weeks. Some lenders may accept your application for the Second Draw earlier than 8 weeks because they know it will take several weeks before they can process your application and more time for the SBA to approve it.
Lenders may have their own interpretations for when they will accept an application for the Second Draw. If your lender won’t process your Second Draw application, and you think you might still be eligible, contact another lender.
You must spend all of the money from the First Draw before you can receive money from the Second Draw. You must spend at least 60% of the money on payroll, either on yourself or on your employees. The other 40% can be spent on mortgage loan interest, rent, utilities, transportation, food and COVID-19 supplies. If you try to spend the money within 8 weeks, so you can then quickly apply for the Second Draw, you won’t be allowed to spend all of the money on payroll for yourself. SBA rules say that you must spread out payroll for yourself over 2.5 months. If you aren’t allowed to spend all of the money on payroll for yourself, you will have to show that you spent the rest of the money on non-payroll expenses within the 8 week period. If you can’t, because you don’t have enough of these expenses, you will have to wait longer before you can apply for the Second Draw.
What about PPP forgiveness?
Are you concerned about getting forgiveness, so you won’t have to pay back money from the First or Second Draw? You shouldn’t worry about getting forgiveness! 98% of small businesses who have applied for forgiveness have received it. You apply for forgiveness by contacting your lender who will have you fill out an application form. This form is simple to complete. The form doesn’t ask you to submit any documentation on how you spent the money, but your specific lender may ask for some documentation.