What’s in the new PPP?

As we head into the winter months of the pandemic, growing concerns of the second wave are being felt nationwide. Statewide restrictions are being reinstituted as we saw back in the spring which have grown the need for more relief to small businesses from the government. Luckily — as of December 27th, 2020 — Congress has passed and the President signed a second stimulus bill for $900 billion which includes $325 billion for small businesses, with $284 billion in forgivable loans via the Paycheck Protection Program (PPP).

Funding for the original loan program depleted in a matter of weeks, and we wanted to provide you with the key details for the second round of aid to help retailers make informed decisions and don’t miss out on needed assistance.

What is the PPP Loan, do I qualify?

The Paycheck Protection Program (PPP) is a loan program implemented by the Small Business Administration (SBA) that incentivizes small businesses to keep their employees on payroll. Although applications for the first PPP closed on August 8, 2020, the new relief bill will offer a second PPP Loan with an extended application deadline to March 31, 2021.

● The PPP Loan is a new form of the existing SBA 7(a) program which allows small businesses to access any of the 1,800 participating SBA lenders as well as any federally insured depository institutions and credit unions.

● PPP Loans have a low fixed interest rate of 1%.

● Similar to the original loan program in the spring — businesses may qualify for loan forgiveness if 60% of aid was spent on payroll. Additionally, the new program allows borrowers to spend the remaining 40% or less on a broader range of business expenses such as mortgage interest, rent, utility, personal protective equipment to meet COVID restrictions, supplier costs and resources such as cloud software and equipment to support remote-work.

● Proof of income such as pay stubs and invoices are required as lenders will need documents related to any wages, commissions, and gross income.

You can check out our previous blog post on loan forgiveness here for more details.

According to the SBA, the following entities affected by COVID-19 may be eligible for relief as well:

● Sole proprietors who report income and pay taxes on Schedule C in your personal tax returns.

● Independent contractors who collect 1099-MISC forms (though for the PPP you will need to submit your Schedule C instead).

● Gig economy workers who work on-call jobs.

How much do I qualify for?

The PPP is meant to fund 2.5 months’ worth of payroll expenses. The new program also adds new qualifying expenses such as operating expenses, workplace protection costs, and covered property damage.

● The maximum loan limit is $2 million — less than the $10 million maximum limit from the first loan program — and the amount a business qualifies for is determined by multiplying their average monthly payroll for 2019 and multiplying it by 2.5.

● For example, a business with an average payroll expense of $50,000 during 2019 would receive $125,000 in aid.

What’s different in the new PPP Loan?

Unlike the first round of PPP loans sent to small businesses — new criteria must be met to be eligible. A small business must certify that they had lost revenue of 25% or greater. To calculate the 25% lost revenue criterion, the small business must have their gross quarterly revenue from the 1st, 2nd, and 3rd quarters of 2019 and compare them with the corresponding quarters of 2020. If at least one quarter shows a lost revenue of 25% or more, borrowers may qualify for a PPP Loan.

● Unlike the first loan, small businesses must have 300 employees or less, which is less than the requirements from the original loan at 500 max employees.

● Small businesses that have taken a second draw loan must have already used or plan to use their original PPP funding.

● Small businesses will not be taxed on the first and second draw loans meaning the loan becomes a tax-free grant.

● Small businesses will still be able to deduct their payroll and other qualifying expenses that they used their PPP funds on.

● Unlike the first loan forgiveness application for loan amounts of $50,000 or less, the new legislation states that loans of $150,000 or less may be forgivable. The SBA will issue a new simplified PPP forgiveness application for borrowers and must certify that all funds were properly used.

If I already received the first loan, can I get another one?

Yes. These are called “second draw” loans and you may qualify if you meet the qualifications listed above. The deadline for all new loan applications is March 31, 2021. In contrast, if you did not qualify for the first loan and plan on receiving aid in the second loan, you still will need to meet the new qualifications for the new loan program. Since eligibility for the original loan program was very broad, the new PPP Loan program have set some stricter guidelines. Nevertheless, you may still qualify for other loan programs from the SBA listed below.

Does the SBA offer other forms of aid besides the PPP?

Yes. Within the legislation, the new relief bill will also offer more targeted relief to applicants of low-income communities and hard-hit industries such as live venues, restaurants, movie theaters, non-profit organizations and cultural institutions. Additionally, the new bill will boost other existing SBA programs by: making lending programs including 7(a), Community Advantage, 504, and the Microloan program more affordable and useful. Below are some details of the other SBA loan programs.

• Economic Injury Disaster Loan (EIDL) — New legislation provides $20 billion targeted funding for low-income communities and can receive an amount equal to the difference of what the entity received under the CARES Act and $10,000. It also provides $10,000 grants to eligible applicants in low-income communities that did not secure grants because funding had run out. Eligible small businesses and non-profits seeking to participate in the EIDL Advance program should contact the SBA.
• For more details on the EIDL you can click here.
• Grant program for shuttered industries — Authorizes $15 billion for the SBA to make grants for eligible live venues, independent movie theaters, and other cultural institutions. Similar to the qualifications for the new PPP Loan, entities must prove they had a lost revenue of at least 25%.
• Minority Business Development Agency (MBDA) — Provides $25 million to help minority business enterprises (MBEs) respond to COVID-19, including by helping them identify and access local, State, or Federal government assistance.
• For more details on the MBDA you can click here.
• Employee Retention Tax Credit (ERTC) — Extends the CARES act ERTC through June 30, 2021, expands eligibility by reducing the required gross receipts decline from 50% to 20% and increases both the credit rate from 50% to 70% of qualifies wages and the limit on per-employee creditable wages from $10,000/year to $10,000/quarter.
• 504 Loans — Provides small businesses with a long term, fixed-rate financing used to acquire fixed assets such as renovation projects and long-term machineries. New legislation will waive borrower and lender fees as well as enhancing refinance options.
• Microloan Program — Provides loans up to $50,000 to help small businesses start up and expand. Microloans can be used for working capital, inventory or supplies, furniture or fixtures, and machinery or equipment. The maximum repayment term for an SBA microloan is 6 years, but under new legislation, borrowers will get an extra 2 years to repay their loans.

Despite the roll out of a vaccine and new federal financial relief, we remain in the thickness of uncertainty. In a report released by the US Conference Board, consumer confidence declined for the month of December compared to October and November, signaling broader economic activity could weaken. As a boutique or a small business, staying afloat during extended periods of low activity is critical and necessary resources and programs by the SBA comes at a timely period. We will continue to update our community through our blog with needed important resources to assist your business. FashionGo stands committed to providing all the right tools and resources necessary to ensure your success.

For more information on the new PPP Loan program and other relief options, you can find it on the SBA’s official website here.