» What to Know About the Second Round of the Paycheck Protection Program (PPP)
January 14, 2021
In a time with so much instability, uncertainty, and economic duress, some good news comes out of Washington D.C. for small businesses.
The Paycheck Protection Program is a government response to the economic disruption caused by the COVID-19 pandemic. The first round provided critically needed funds to companies to stay afloat, meet payroll, and survive this unprecedented pandemic.
On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021 which reauthorized the Paycheck Protection Program. In addition, Congress provided $248.5 billion to the program in order to provide small businesses with a second round of forgivable loans.
This is welcome news at a critical time for the many small businesses keeping people afloat and employed right now.
Click here to visit the U.S. Department of Treasury’s Assistance for Small Businesses webpage to access resources and information for the CARES Act and PPP.
Key Highlights of the Second Round of the Paycheck Protection Program (PPP)
Below are some key highlights of the second round of PPP
- Employers can include employer-paid group insurance premiums, including employer-paid life, disability, dental, and vision insurance as payroll costs in their forgivable loan amount
- Qualifications are different from the first round and apply mainly to employers with fewer than 300 employees
- The list of other forgivable expenses has expanded
- Interested businesses must demonstrate losses this round, showing a quarter to quarter loss from 2019 to 2020
- If you didn’t apply for a first round loan, you can still apply with the more lenient standards of the first round and also benefit from the increased list of forgivable expenses for round 2
- If the loan isn’t forgiven or a portion of it remains outstanding, the interest rate is 1% and must be repaid within two years. All payments are deferred during the first six months of the loan, although interest does accrue
FAQ for Round 2 of the Paycheck Protection Program
What businesses are eligible for PPP loans?
To be eligible for a second round PPP loan, a business must
- Have less than 30 employees, and
- Demonstrate a 25% decrease in gross receipts from a quarter in 2019 compared to the same quarter in 2020
This is a departure from the first round of PPP, in which businesses with under 500 employees were eligible and only needed to certify that present economic conditions made the loan necessary to support the business.
How can I have my PPP loan forgiven?
A PPP loan is designed to be 100% forgivable. For the loan to be forgiven, the business must meet 4 conditions:
- 60% of the loan must be used for eligible payroll costs, and
- The employer must maintain the same number of employees, and
- The employer must maintain 75% of employee wages, and
- Other forvgivable uses include: mortgage interest, computing services for business operations, costs related to property damage in 2020 not covered by insurance, supplier costs, and expenditures for worker protections due to COVID-19
Scenario: We never took a first round PPP loan
You can take the first round now and you must only certify that you experienced a loss due to current economic conditions, rather than the 25% decrease in gross receipts for round two.
To your benefit, you can use the expanded definition of payroll costs and the expanded list of forgivable expenses when you apply to have your round one PPP loan forgiven
Scenario: We took a first round PPP loan, have funds remaining, but have not yet applied for loan forgiveness
If you had paid for some of your group insurance premiums during the period, those premium payments are now forgivable uses of the loan.
For example, let’s look at a business that received a $200,000 loan and used $175,000 on forgivable expenses and spent $25,000 on employer paid group insurance. The business can apply for $200,000 of loan forgiveness as the insurance premiums are now a forgivable payroll expense.
Scenario: We took a first round PPP loan and fully paid it off, and now want to take a second round loan
You must demonstrate a 25% decrease in gross receipts from a quarter in 2019 to the same quarter in 2020.
For example, let’s compare 2019 to 2020 quarterly gross receipts
- First quarter: $237,000 to $245,000 No Loss
- Second quarter: $228,000 to $159,600 30% Loss
- Third quarter: $240,000 to $190,000 21% Loss
- Fourth quarter: $250,000 to $201,000 20% Loss
In the above example, our business could point to the second quarter loss between 2019 and 2020 to be eligible for a second round PPP loan.
This business would now be eligible for up to $2 million in lending.
Remember to calculate your average monthly payroll costs, being sure to include employer-paid group dental, disability, life, and vision premiums as well as other forgivable expenses.
If you want to know more about calculating your forgivable payroll costs including your employer-paid insurance premiums, please click here to schedule time to discuss your situation.
*Please note that the above information is informational and should not be considered legal advice. Consult with your legal professional regarding your specific situation.