FAQs: Round Two of the Paycheck Protection Program (PPP)

As the roll-out of the second round of Paycheck Protection Program loans gets underway, we’ve compiled answers to common questions relating to this revamped coronavirus relief funding. The renewed program gives small businesses a second chance at PPP loans and expands the program to additional types of organizations, among other provisions.

We expect to receive further guidance and clarification from the U.S. Small Business Administration, which oversees this program. In the meantime, the following is what we know today. We will provide updates to this document as we learn more. You can listen to our advisors share detailed insight on PPP2 and other COVID-19 relief provisions in our recent complimentary webinar here.

Application Questions

Are we dealing with full-time employees (FTEs) or just head count for the PPP2 loan amount determination?

At this time, it is unknown if the SBA is considering FTEs or headcount yet, but we'll know soon, we hope.

The previous PPP round one had a certification on the application that was worded: "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." Does this certification exist for PPP round two and how do you determine with certainty if you can claim this necessity?

There is no form yet, but we can only assume a similar test and form attestation is forthcoming.

If an entity received $1.5 million in round one of PPP, is round two limited to $500,000 (so as not to go over the $2 million cap)?

No, the $2 million cap if for the total round two amount. If you received $1.5 million for round one, you can receive $1.5 million in round two. If you received $4 million in round one, you would be capped at $2 million for round two.

What is the historical payroll period that the 2.5x applies to?

2019 or 2020 – your choice.

What do we use to calculate the monthly amount? I understand we could use monthly health insurance and add it to payroll. Is there any other bill we can add to get the monthly PPP amount to multiply it by 2.5?

Gross wages and the employer portion of health/dental/vision insurance and employer paid retirement plan payments.

Questions relating to the 25% reduction component

How do we “prove” we had a 25% reduction in sales in one quarter from 2019 to 2020? What sort of documentation is required?

Your organization’s financial statements will be the default documentation needed, unless the SBA does follow up or conduct an audit, which they can.

Is the timeframe of a quarter a “calendar quarter” or any three months?

There are various areas of the new legislation that mention calendar quarters, but it is not specifically defined as such in the section for revenue comparison. However, it would appear to be implied. This should be confirmed when the new application is rolled out with reporting information required for proving the 25% revenue drop.

For the 25% reduction calculations, do we look at sales numbers or actual receipts?

This is likely based on your method of accounting (cash vs. accrual).

From which period do you pull payroll information? Is it the payroll during the down quarter?

For a second-draw PPP loan, you can use 2019 payroll information or the prior 12 months. For most applicants, the 2019 payroll will yield the largest loan amount, assuming wages were down in 2020. 2019 gross wages, employer health insurance payments, and employer retirement plan payments are used to calculate monthly average payroll X 2.5.

What types of reports should we put together for the 25% reduction?

The bill didn't give specifics on this, but we believe it will be defined on the updated PPP2 loan application. We would expect an internal financial statement would be sufficient, but the application should define this.

Is PPP revenue received in 2020 excluded from revenue when comparing quarters?

While specific guidance hasn't confirmed this, loan forgiveness is generally booked into the "Other Income" section of the P&L and not included in company revenue or included in the revenue comparison test.

Loan forgiveness questions

Does loan forgiveness get included in quarterly revenue for 2020 v. 2019?

Specific guidance has not been released, but most clients are booking loan forgiveness to "other income" and this does not roll into their revenue line and would not be included into the revenue comparison.

Is there any guidance about SBA 504 and Section 7 loans having payments be forgiven for six to nine months?

The debt relief program provided for by the CARES Act, which covers principal, interest, and fees payments for eligible SBA 7(a) loans has been extended for an additional three-month period, with payments starting on Feb. 1, 2021. There is an extended five-month period after the initial three months for businesses operating under certain hard-hit industries (food and entertainment, educational services etc.)

Is the change in forgiveness application retroactive to the first PPP?

Many aspects (types of other costs, etc.) are retroactive, especially if you are applying for a first round of PPP. If you’re filing for round 2, then you need to meet the new requirements.

We received a $120,000 PPP1 loan. Can we now use the one-page forgiveness form?

Yes, you can. It might be two pages.

How does PPP application and loan forgiveness work for self-employed individuals?

Loan amounts for sole proprietors are calculated based on 2019 net profit (line 31 of 2019 Form 1040, Schedule C), divided by 12, to get a monthly “average” net profit. The monthly “average” multiplied by 2.5 is equal to the amount of PPP loan a sole proprietor can receive, subject to a maximum loan of $20,833.

Self-employed individuals can automatically receive two-and-a-half months’ worth of net profit forgiven through a mechanism called Owner Compensation Replacement (OCR).

What if you were already forgiven and already paid off the $10K loan. Is it possible to recover that?

There has not been specific guidance for loans that have already been paid off. Your bank would need to receive funding from the SBA for this and then refund your loan. We suggest following up with your lender as more guidance is released.

If I also received the Economic Injury Disaster Loan (EIDL) grant, does that amount still get subtracted from the PPPL?

No, EIDL grants are not deducted from PPP loan forgiveness.

Can you still apply for EIDL?

Yes, you can still apply for an EIDL loan at SBA.gov. Additional targeted (limited eligibility) EIDL grants will be starting as soon as the SBA releases an updated application. Employee Retention Tax Credit (ERTC) questions

Since our PPP cash was added to our existing cash account, how can you determine if you used the PPP money to fund the wages that may fall under ERTC?

That's one of the areas on which we really need guidance. The calculation can be done in so many ways, but we don't know yet how the SBA will look at it. Stay tuned as we and many others have asked SBA to clarify how to calculate wages when both ERTC and PPP are used.

Our PPP has already been forgiven. I used 100% payroll for the forgiveness since at that time the ERTC was not available and with the extension of the coverage period to 24 weeks, it was a much cleaner application - based only on payroll. Now in retrospect, I could have carved out other expenses for the PPP forgiveness, and used payroll for the ERTC. Am I thinking correctly? What should my next steps be?

It appears that the SBA will provide a process soon for those who want to go back and take advantage of both opportunities. It is retroactive, so we know you can do it. We just don't know how yet. More to come on this one.

If you qualified and maxed out during 2020, do you have to requalify based on 2021 rules?

Yes. That is correct if you maxed out in 2020. If you didn't max out in 2020, then you can go back and top that one off with any changes to the rules that can get you a higher cap on borrowing/forgiveness.

Rehmann is focused on providing practical guidance and insights to help empower organizations and individuals as we navigate through the uncertainty and complexity of this pandemic, together. For the latest updates and insight, please visit our Empowered Planning resources page on our website. Please click here to subscribe to our communications to ensure you remain up to date during these uncertain times.


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