Employers may be eligible for a second PPP loan
The Paycheque Protection Program (PPP) aims to help struggling businesses keep their workers at work during the COVID-19 crisis. Employers who received loans under the program last year may be eligible for a second loan if they meet certain criteria.
Congress passed the Consolidated Appropriations Act, 2021 (CAA) in December 2020, which included a $ 900 billion COVID-19 economic relief plan. Among other provisions, the CAA extended and modified the PPP.
The program provides small businesses “with the resources they need to maintain their payroll, hire employees who may have been made redundant and cover applicable overhead costs,” according to the US Treasury Department.
Eligible employers can now apply for a first or second PPP loan until March 31.
“Small businesses and qualifying nonprofits, veterans’ organizations and tribal businesses described in the Small Business Act, as well as individuals who are self-employed or independent contractors, are eligible if they meet also up to program size standards, ”according to the US Small Business Administration (SBA), which administers the program.
Most businesses are eligible for a first loan if they employ less than 500 people. However, businesses that employ more than 500 workers may be eligible if they meet the SBA size standards for their industry.
Employers may be eligible for a second draw if they:
- Not to have more than 300 employees.
- Already received a first draw PPP loan and used the full amount only for authorized uses.
- Can show a reduction of at least 25% in gross revenue between comparable quarters in 2019 and 2020.
A key change is that borrowers do not have to keep their staff numbers and salaries at pre-pandemic levels for their loan to be canceled if they certify that they had to downsize to comply with federal guidelines on “sanitation, social distancing, or any other work or customer safety requirements related to COVID-19,” said Angelo Filippi, an attorney at Kelley Kronenberg in Fort Lauderdale, Fla. This also expands the expenses that would qualify for a loan rebate to include the cost of safety equipment for employees, erecting barriers and other space modifications necessary to comply with social distancing guidelines. . “
PPP loans cover a period of eight to 24 weeks. Employers can request a loan forgiveness if the following criteria are met during the period covered:
- The numbers and compensation levels of employees are maintained.
- Loan funds are spent on salary costs and other eligible expenses.
- At least 60 percent of funds are spent on salary costs.
For the second draw, the numbers and pay levels of employees must be maintained in the same manner as those required for the first draw.
“Employers should take a close look at loan forgiveness requests and instructions,” said Patrick Dennison, attorney at Fisher Phillips in Pittsburgh. “Take the time to take stock of the demand before reaching the end of the period covered. If there is something you don’t understand about the request, consult an industry professional, be it a lawyer or a CPA, before the time is right. complete and submit to forgiveness. ”
Michael Mahoney, a lawyer with Ogletree Deakins in Morristown, NJ, said employers should start considering a loan forgiveness before they receive their loan disbursements.
Create a separate bank account for distributing PPP loans, he said. “It will simplify a borrower’s ability to track how every dollar in the loan is spent.”
Borrowers should contact their suppliers to review all available reporting features that could help them document the salary and non-salary costs allowed during the period covered, he added.
“Payroll records are essential,” Filippi noted. For a full discount, employers must show that employees retained during the eight to 24 week period were paid at least 75% of their pre-pandemic salary and that 60% of the PPP loan was used to fund mass salary.
Employers must keep copies of canceled checks, bank statements, utility bills, mortgage statements and rental agreements to prove that payments have been made for covered expenses.
“We always encourage employers to document, document, document,” said Brent Beckert, attorney at Haynes and Boone in Dallas. Borrowers should also maintain an open line of communication with their lenders and keep them apprised of any judgment appeals made as part of the application or pardon process, he said. “This will allow borrowers to resolve issues before submitting their claims to the SBA and avoid unnecessary surprises later.”
Employers should carefully consider information about the SBA and the Treasury Department websites. “The most common mistake employers make when it comes to P3 loans is not following changes in rules or guidelines,” Dennison noted.
Employers are also wrong in approaching the PPP loan process as if they are unaudited. “In my opinion, employers should do the opposite and approach the process as if an audit is imminent,” Dennison said. “Employers need to be proactive, careful and thoughtful in preparing documents and records related to P3 loans. ”
Some borrowers do not view the loan forgiveness request or their own data until after the end of the period covered. This can limit a borrower’s ability to implement strategies to take advantage of various security rules or rule exceptions that reduce the amount of the loan that can be forgiven, Mahoney said.
Other borrowers do not keep PPP loan records in a centralized location, causing them to scramble to collect the necessary information when filling out the loan forgiveness request.
“In some cases, employers have not been able to find documents to justify unique situations, such as good faith offers to rehire laid-off employees who have been refused or employee requests for reduced hours.” , Mahoney observed.
Some employers have avoided downsizing for fear of losing their eligibility for loan cancellation. Filippi explained that companies can receive a proportional discount loss, which can be adjusted if they offer reinstatement. “Remember that even without forgiveness of the entire loan, the repayment terms for PPP loans are extremely favorable,” Filippi said.