A quite important aspect of the new stimulus legislation for struggling small businesses is the second round of PPP loans. This legislation offers around $284 billion for second draw loans. During this round, the loan limit is $2 million and the amount that a qualifying small business can qualify for is again determined by taking their average monthly payroll in 2019 and funding a comparable period of 2.5 months of payroll expenses. For the beaten down restaurant and food businesses, there is a potentially larger loan amount of 3.5 months of average monthly payroll.  

We want to highlight that the necessity requirement must still be satisfied for taking an additional loan, which is defined as being necessary to support the ongoing operations of the business. Remember, if the business has been profitable or at least broke even and fully expects to survive without assistance, until the virus clears, then the loan appears to not be sufficiently necessary. There are potential penalties but keep in mind that the SBA has announced that it will not question necessity for loans under $2 million. 

To better guide you in the decision of what necessity means, there is a requirement that gross receipts for a calendar quarter in 2020 were 75% or less of the corresponding quarter in 2019.     

We suggest that you compare each quarter in 2019 to its corresponding quarter in 2020 – January through March of 2019 to January through March of 2020, April through June of 2019 to April through June of 2019, July through September of 2019 to July through September of 2020, or October through December of 2019 to October through December of 2020. If any one of these comparisons passes the 25% reduction test, then a new PPP loan is an option for you. 

Your small business must have 300 (down from 500) employees or less and already utilized/plan to use their original PPP funding. Similar to the original PPP loan program, the small business can use the loan proceeds over a period of 24 weeks and can use the funds for payroll, rent and mortgage expenses. The bill also adds some new expenses to the list of “qualifying expenses.” These new qualifying expenses include operating expenses, workplace protection costs to protect employees from COVID-19, while covered property damage and certain supplier costs can also be counted.   

Potentially your loan amount can be higher than earlier in 2020 as the amount available will now include expenses paid for group life, dental, vision, and disability insurance as a part of payroll expenses. 

The 1% interest incurred on PPP loans will not be compounded (i.e., there will be no interest on the interest that accrues under these loans) and will not adjust if interest rates rise. 

Opportunity for a redo when it comes to your original PPP Loan amount 

Borrowers will now be able to apply for 2.5 times the average monthly cost of these items as an additional advance under their original loans using an amended loan application. Borrowers who received loans in the first round will also be able to submit revised applications to request increased loan amounts if rule changes either by the SBA or this Act would allow for a higher than originally received loan amount. 

There is more about Economic Injury Disaster Loans (EIDL), too 

Also provided for is a new round of EIDL loans which are intended to go first to the people and businesses who need them the most. We suspect that the previous limitation of $1,000 per employee and not exceeding $10,000 per borrower will remain in place. Contact us to understand further understand your options should you be considering applying for such an SBA loan. 

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