With the pandemic continuing and the national economy still far from reaching the end of the tunnel, the U.S. government has decided to give out stimulus once again for small businesses to survive. The first round of the Payment Protection Program (PPP) was released in April 2020. It turned out to be beneficial in helping small businesses retain some of their employees. Hopefully, the second round of PPP loans will help more small businesses in their financial struggles until the pandemic ends.
The PPP Loans
Payment Protection Program is a loan program based on the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The stimulus is mainly to prevent joblessness by helping small businesses retain or rehire their employees during the crisis. The application starts on April 3rd next year for most programs. For the sole proprietors and contractors, the application starts on April 10th, 2021.
Similar to the first stimulus, the second PPP loans are forgivable if you used the money as regulated. And even without the forgiveness, paying back is not difficult because the interest rate is only 1% for a five-year term.
Who Is Eligible for PPP Loans?
Any business that has started operating in February 2020 is eligible for the stimulus program if it has at least 25% of revenue loss throughout the year. For example, if your company earned $20,000 in 2019, then you can apply for the program only if your company earns $15,000 or less. Each business also needs to have no more than 500 employees to be eligible for this loan.
Businesspeople who have received loans from the first PPP can also apply for the second loan if they didn’t max out their first loan. However, they can apply to get the remaining of the loan offered. For example, if someone is eligible for $5,000 on the first PPP but only took $3,000, they now can ask for the rest $2,000 and nothing more.
Even so, there are some categories of small businesses that are not eligible despite the qualification. They are:
- Household employers (individuals who hire maids, babysitters, etc.)
- Gambling businesses
- Marijuana businesses
- Sexual material businesses
- Banks, investment companies, and the likes
- Politicians and lobbyists
- Landlords and other passive businesses
- Religious businesses
- A business owned by a non-US citizen nor a lawful permanent resident
- Business owners with felony charges in the past five years
How Much PPP Loans Can You Get?
The amount of loan you can earn is 2.5 times your average monthly payroll cost, up to $2,000. Businesses in the food and accommodation industries can get up to 3.5 times their average monthly payroll cost. This amount of funding should be enough to sustain your employees with their 8-week worth of salaries.
Seasonal businesses can apply for the loans if they have not been operating for at least seven months. To calculate their average payroll cost, use the timeframe of 12 weeks between February 15th, 2019, to February 15th, 2020.
Photo: SBA
How Is It Different from the First Stimulus?
The second stimulus is mostly similar to the original one. However, to improve its effectiveness, some adjustments are made. Here are some of the key differences:
- Any expenses covered by the second stimulus are now tax-deductible. The loan will not count as a taxable income either.
- Accepting an EIDL advance grant does not reduce the amount of forgivable PPP loans.
- The limit of loans is down to $2,000 from $10,000 at the first stimulus program in the hope to cover more businesspeople in the country.
- There are more expenses covered by the stimulus with possibilities to get forgiveness.
- Non-profit businesses can now apply for the funding as well.
Covered Expenditure
Anyone granted with PPP loans on this second round should use 60% of the funding for payroll. This category also includes retirement plans, paid leave (family, vacation, medical, and sick leave), healthcare expenditure, and insurance. Tips, commissions, and other cash salaries are also acceptable for this category as long as it doesn’t exceed $100,000 on an annual basis.
The remaining 40% can be spent on other operational expenses as regulated. On the first round of the stimulus program, the remaining funding can be used to pay rents and utilities. But in the second one, you can also spend the money on operational costs, property damage repair, worker protection, and supplier cost. It is crucial to spend the funding accordingly to maximize your potential of full forgiveness.
Photo by Karolina Grabowska from Pexels
How to Apply for PPP Loans
First of all, you will need to download the application form first from the SBA website. The form isn’t available yet (we will put it up here as soon as it is available). The file will also contain detailed instructions on how to process the application. Read it thoroughly before moving forward.
To get your application granted, you must be able to show a 25% or more loss of revenue in your gross receipt in any quarter of 2020 compared to the same quarter in 2019. Here is where you will need to get your bookkeeping well-organized and updated.
SBA has appointed 1,800 companies to administer the PPP loans. If you are having problems finding a lender in your area, try accessing the SBA website. There is a directory of legal lenders categorized based on each state.
How Can NumberSquad Help?
Number Squad ensures your ledgers to be accurate and well-updated. With neat bookkeeping, it will be effortless for your business to compile proof of how you deserve the PPP loans. We can assign a dedicated professional for you if your business has more complicated bookkeeping tasks needed.
Our service is affordable, much cheaper than hiring a bookkeeper as a full-time employee. Hence, there will be no financial burden on your business. And when it is time to deal with your taxes, all the required data would have been ready. No more stress for you on that matter!
The coronavirus outbreak has affected most people in the world. With the PPP loans, you can minimize the damage done to your business. Make sure to use the money wisely to get the most effective benefits of it. And with well-organized bookkeeping, it will be easy to review how much the stimulus affects your business.
