PPP Loan Updates and Reminders

by Megan Hiles
Paycheck Protection Program Borrower Application Form

The deadline to apply for first- or second-draw Paycheck Protection Program (PPP) is May 31, 2021. Here are some important reminders as the deadline approaches:

What is a PPP Loan?

A PPP loan is a loan provided by the U.S. Small Business Administration in response to the financial crisis many small businesses continue to face due to the ongoing COVID-19 pandemic.

PPP loans can be used to:

  • Help fund payroll costs, including benefits
  • Pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19
  • Pay uninsured property damage costs caused by looting or vandalism during 2020
  • Pay certain supplier costs and expenses for operations
  • Cover worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
  • Pay expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
  • Cover operating costs such as software and cloud computing services and accounting needs.

Who Qualifies for a PPP Loan?

An entity must fall into one of the categories listed below and have been adversely affected by the COVID-19 pandemic:

  • Sole proprietors, independent contractors, and self-employed persons
  • Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of:
    • 500 employees, or
    • That meets the SBA industry size standard if more than 500
  • Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location
  • 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations”

How Do I Apply for a PPP Loan?

Do not contact the SBA directly to apply for a PPP loan. You will need to apply through a qualified lender. The SBA has a Lender Match tool you can access here. If you already have a relationship with a lending institution, you may contact them directly to inquire about applying for a PPP loan. Regardless of the lender, all first draw and second draw PPP loans have the same terms.

PPP vs. PPP2

If you have not yet applied for and received a PPP loan, but plan to before May 31st, you will apply for a first draw PPP loan. Click here to download the PPP first draw application form from the SBA.

If you applied for and received a PPP loan and wish to apply a second time before May 31st, you will apply for a second draw PPP loan. Qualified expenses and employee standards remain the same for the second draw as they were for the first. Click here to download the PPP second draw application form from the SBA.

If you are a previous PPP recipient who has 300 or fewer employees, have or will use all previous PPP funds, and can show 25% decline in gross revenue, you may apply for another loan of up to $2 million. Borrowers will still have to spend no less than 60% of the funds on payroll over a covered period of any time period between 8 and 24 weeks to receive forgiveness.

PPP Loan Forgiveness

As long as all employee criteria are met and the funds are used for eligible expenses, a PPP loan is fully forgivable.

For first draw loan forgiveness, during the 8- or 24-week covered period following loan disbursement:

  • Employee and compensation levels are maintained
  • The loan proceeds are spent on payroll costs and other eligible expenses; and
  • At least 60% of the proceeds are spent on payroll costs

For second draw loan forgiveness, during the 8- to 24-week covered period following loan disbursement:

  • Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan
  • The loan proceeds are spent on payroll costs and other eligible expenses; and
  • At least 60% of the proceeds are spent on payroll costs

In the case of either first or second draw loan forgiveness, the loan recipient must apply for full forgiveness once all the requested funds have been used and before the maturity date of the loan. If the recipient doesn’t apply for forgiveness within 10 months after the last day of the covered period, the PPP loan payments are no longer deferred and payments to the PPP lender must be made.

To apply for forgiveness, contact your PPP lender directly for information. Make sure you have documentation showing you used the PPP funds for eligible expenses. There is a simplified forgiveness application process for loans of $150,000 or less.

Considerations for Businesses with Affiliates

It is important to remember the maximum PPP loan size is capped at $2 million for businesses, as well as their affiliates. That means the total amount a business and its affiliates can apply for is capped at $2 million. Businesses are also only eligible if collectively with their affiliates the employee count is below 300.

For purposes of the PPP loans, per the U.S. Small Business Administration (SBA), an affiliate is determined based on any of the following four tests being met:

  1. Affiliated based on ownership – based on owning or controlling more than 50 percent of the entity’s voting equity
  2. Affiliation arising under stock options, convertible securities, and agreements to merge
  3. Affiliation based on management – CEO or President of the applicant also controls the management of another entity. Directors or management of one entity also controls the Board of Directors or management of one or more other entity. Affiliation also arises where a single individual or entity controls the management of the applicant through a management agreement
  4. Affiliated based on identify of interest – Identity of interest between close relatives such as husband and wife or kids with identical or substantially, identical business or economic interests

If you have multiple businesses applying for PPP2, you need to determine if your businesses are considered affiliates so you do not receive loans in excess of $2 million or exceed the 300 employees cap. You will be responsible for repaying any misattributed funds you receive.

Safe Harbor for Businesses Receiving PPP Loans

The IRS and U.S. Treasury Department recently released Revenue Procedure 2021-20, which allows businesses who received PPP loans and used the funds for eligible expenses to still claim those deductions on their tax return in the immediately subsequent taxable year. To be eligible for this safe harbor, you must have filed your tax returns in a timely manner or filed an information return for 2020 on or before December 27, 2020.

We’re Here to Help

The professionals at Corrigan Krause can help you navigate the standards and stipulations of PPP loans and more. Email ckcrisisteam@corrigankrause.com for more information.