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A Guide To The Second Round Of Paycheck Protection Program

Updated : December 30th, 2020

Recently, Congress has announced a second stimulus package under which the unemployed Americans will get $600 stimulus payments. In addition to offering financial assistance to the unemployed citizens, the package also provides aid to the small businesses through the Paycheck Protection Program (PPP). 

In this article, we will tell you who qualifies for the second round of the Paycheck Protection Program and lots more about it. 

What Is A Paycheck Protection Program?

The Paycheck Protection Program is a loan program that provides cash-flow assistance to small businesses. The program is backed by the Small Business Administration (SBA) and originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 

More About The Second Round Of Paycheck Protection Program

The new stimulus package provides $300 billion for financial support of small businesses, including extra PPP. In addition, the package includes provisions for simplified forgiveness for PPP loans of $150,000 or less. 

The second round of the Paycheck Protection Program will have a framework similar to the first-round funding. The loan amounts will be based on the payroll costs (2.5 times for most businesses and 3.5 times for restaurants and food businesses), and the maximum loan will be $2 million, which is lesser than that given by the first program. 

However, allowable expenses will be similar to that of the initial program but with the addition of safety expenditure. Note that you will need 60% to 40% allocation between payroll and non-payroll costs for full forgiveness under the second program.

Who Qualifies For The Second Round Of Paycheck Protection Program?

The following businesses are eligible for the second round of the Paycheck Protection Program. 

  1. Self-employed individuals, independent contractors, and sole proprietors,
  2.  Nonprofit organizations, tribal business concerns, small businesses, veterans organizations, and small agricultural cooperatives that adhere to the SBA size standards. 
  3. Certain small news organizations, housing cooperatives, destination marketing organizations, and 501(c)(6) nonprofits. 

To qualify for the PPP loan, businesses must meet the below-listed requirements. 

  • Businesses must have 300 employees or less, which is down from the 500 employees in the first round
  • Small businesses must have already used or plan to utilize their PPP funding received from the first round
  • The business must have a reductive in its revenue by at least 25% in at least one quarter in 2020 when compared to previous quarters
  • Business must have been in operation by February 15, 2020

Note – Certain types of businesses, including businesses where the primary activity is lobbying and those with at least 20% of China ownership, are not eligible for PPP.

How Can Businesses Use Funds From PPP?

The businesses can choose any period between 8 and 24 weeks to be their “covered period.” During the period, they can use the PPP funds for payroll, rent, and mortgage expenses. The second stimulus bill also adds some new expenses to the list of “qualifying expenses,” including operating expenses and costs to protect employees from COVID-19 and covered property damage.

What Counts As Payroll?

Payroll is the same as defined in the first round of PPP. They include:

  • Payment of any retirement benefit (employer cost)
  • Salary, commissions, wages, or similar compensation
  • Allowance for dismissal or separation
  • Payment for vacation, family, parental, medical, or sick leave
  • Payment of cash tips or equivalent  
  • Payment required for the employee benefits such as insurance premiums 
  • Payment of local or state tax assessed on the employees’ compensation 
  • Group benefits including group life, vision, disability, or dental insurance

How To Calculate 25% Reduction In Revenues?

You can calculate the 25% reduction in revenues by comparing the gross receipts of your business before subtracting the expenses. You can compare them for any quarter in 2020 with the same quarter in 2019. 

However, if your business was not in operation during a certain period in 2019, you can calculate the revenue reduction by following the procedure below.

Case 1– Your business was not in operation during the first or second quarter of 2019 but was in operation in the third and fourth quarter of 2019. In such a case, you can compare gross receipts from the third or fourth quarter of 2019 with any quarter in 2020 and determine whether it has reduced by 25%. 

Case 2 – Your business was not in operation during the first, second, or third quarter of 2019 but was in the fourth quarter of 2019. In such a case, you can compare gross receipts from the fourth quarter of 2019 with any quarter in 2020 and determine whether it has reduced by 25%. 

Case 3 – Your business was not in operation in 2019 but was in operation before February 15, 2020. In such a case, you can compare gross receipts from the first quarter of 2020 with the second, third, or fourth quarter of 2020 and determine whether it has reduced by 25%. 

Note – 

  1. Gross receipts for nonprofits and veteran’s organizations have the same definition as gross receipts under section 6033 of the Internal Revenue Code of 1986.
  2. The first quarter runs from January 1 to March 31, the second quarter from April 1 to June 30, the third quarter from July 1 to Sept 30, and the fourth quarter from October 1 to December 31st. 

How To Apply For PPP? 

You can apply for PPP by visiting https://www.sba.gov/document/sba-form-2483-paycheck-protection-program-borrower-application-form and completing the borrower application form. 

Final Words  

Though several details are still unclear about the Paycheck Protection Program, it is expected to provide the much needed financial support to the small businesses throughout the country. Let’s wait and watch what changes or additions the lawmakers make to the PPP in the upcoming days. Until then, collect all the necessary documents required to apply for the program and prepare yourself for the PPP. 

 

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