Background

On 12/27/2020, the President signed into law the Consolidated Appropriations Act of 2021. This legislation, which spans 5,593 pages, was the longest bill ever passed by Congress. The bill provides $900 Billion in stimulus relief to support the United States in its battle with the COVID-19 pandemic. Of the $900 Billion, $325 Billion was set aside for small business aid with roughly $284 Billion going to the U.S. Small Business Administration (SBA) to re-open the popular Paycheck Protection Program (PPP). The SBA has since released Interim Final Rules (IFRs) providing guidance to banks and applicants for how to obtain these loans.

Types of PPP Loans and Eligibility

First Draw PPP Loans (PPP1) – If your business did not apply for or did not receive a PPP1 loan during the initial loan window of Spring/Summer 2020, you may be eligible to apply for a PPP1 loan in the coming weeks. To qualify, your business must:

  • Have been in operation on or before 2/15/2020.
  • Have 500 or fewer employees. An exception is made for businesses that average less than 500 employees per physical location and have a NAICS code starting with 72 (hotels and food services).
  • Be able to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
  • Most sole proprietors, independent contractors, and self-employed individuals are eligible to apply.
  • The loan is calculated by determining the average eligible monthly payroll costs, from 2019 or 2020, and multiplying it by 2.5. The maximum loan to any borrower is $10,000,000.
  • The deadline to apply for this loan is 3/31/2021.

Second Draw PPP Loans (PPP2) – If your business did receive a PPP1 loan during the initial loan window, you may be eligible to apply for a PPP2 loan in the coming weeks. To qualify, your business must:

  • Have been in operation on or before 2/15/2020.
  • Have 300 or fewer employees. An exception is made for businesses that average less than 300 employees per physical location and have a NAICS code starting with 72 (hotels and food services).
  • Have had a drop in gross revenues of 25 percent or greater in any quarter in 2020 when compared to that same quarter in 2019. There are alternate rules to consider if the business was not in operation for all of 2019.
  • Have used or will use the full amount of PPP1 funds on qualified expenses.
  • Most sole proprietors, independent contractors, and self-employed individuals are eligible to apply.
  • The loan is calculated by determining average eligible monthly payroll costs, from 2019 or 2020, and multiplying it by 2.5 (NAICS Code 72 businesses use 3.5). The maximum loan to any borrower is $2,000,000.
  • The deadline to apply for this loan is 3/31/2021.

How to Apply for the Loan

The SBA could officially begin accepting PPP loan applications as early as 1/11/2021. They have committed to only accepting PPP loan applications from community financial institutions that serve minority, underserved, veteran, and women-owned businesses for the first two days. After that, presumably, the SBA will begin accepting applications from all eligible institutions. The banks are hard at work right now preparing their platforms to accept both rounds of the PPP loans. While the SBA window may be open to start applying on 1/11/2021, it could be days or even weeks before all banks are ready to start processing applications.

If you believe that your business may be eligible to apply for a PPP1 or PPP2 loan, we recommend that you contact DMJPS now to determine your eligibility, loan amount, and what items you can start gathering now to be ready. There is a lot of information to digest here and likely more guidance to come from the SBA and Treasury. One thing is for sure, you are not alone and we are here to help.

Disclaimer: This information based on guidance provided by the SBA and information provided in the Consolidated Appropriations Act of 2021. It was accurate as of 1/7/2021 to the best of our knowledge but is subject to change based on new information provided by the SBA. It is intended to be a high-level overview and does not constitute a complete discussion of any of the issues.

Jeff Marko, CPA
Jeff Marko, CPA

Jeff is a Senior Tax Manager in DMJPS’ Durham, North Carolina office with experience in large multi-state C-Corporations, closely held S-Corporations and Partnerships, Sole Proprietorships, and high net-worth individuals. In addition, Jeff provides a variety of services including international and domestic tax consulting and compliance, business entity structure and planning, individual income tax planning, ASC 740 tax provision services, FIN 48 documentation and analysis, state tax nexus studies, and IRS correspondence.

More posts
Share With: