Who Could Qualify For The Ppp Loan
All funding categories met these requirements to secure funding:
- In operation before Feb 15th, 2020
- Belongs to one of the following categories:
- Small-medium sized business with fewer than 500 employees
- Accommodation services with fewer than 500 employees e.g hotels
- Food services with fewer than 500 employees e.g cafes and restaurants
- Self-employed individuals/solopreneurs
- Housing co-ops with fewer than 300 employees
- Independent news organizations with fewer than 500 employees
Extra requirements for the second draw were:
- Must have fewer than 300 employees
- Must be able to prove a 25% decrease in revenue during one quarter 2020
How Can You Apply For Ppp Loan Forgiveness
Step 1: Contact your lender
Your lender will be able to help you understand which form you need to fill out. There are three government-created templates for loan forgiveness applications. However, your lender doesnt need to use them. They may decide to go their own way. So it is best to ask them what forms you need to complete.
Step 2: Get your documents in order
This is going to be a big list so take your time!
Proof of eligible payroll costs
- Bank account statements or payroll statements that show how much you have compensated your staff
- Payroll tax filings
- Payment receipts for employee benefits programs e.g retirement benefits, employee health insurance
Proof of other eligible expenses/ non-payroll costs
- Mortgage interest payments related to your business property – you need invoices and/or receipts
- Rent/lease payments related to your business property – you need invoices and/or receipts
- Utility bills related to your business activity – you need invoices and/or receipts
- Operational expenses e.g business software – you need invoices and/or receipts
- Property damage costs – you need invoices and/or receipts, plus proof that those costs relate to uninsured property damage e.g vandalism and public disturbances
- Supplier costs – you need copies of your contracts and invoices
- Worker protection costs such as COVID-19 related protective equipment – you need receipts, invoices and proof that these costs are COVID-19 related
Keep In Touch With Your Lender
While you wait for your loan decision, its important to keep in touch with your lender. Additional information or documentation may be required as your loan is being processed, so be on the lookout for emails or phone calls requesting this information. Failure to communicate with your lender promptly can cause delays in the application process and receiving your funds.
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Business Name And Address
You are required to provide both your Business Legal Name and your DBA or Tradename if applicable. Your Business Legal Name is found on any government forms. A DBA or Tradename is what appears on bank statements or invoices if itâs different than your Business Legal Name. Your Business Address is also found in these documents.
Which Application Should I Use To Apply
There are two application forms that can be used to apply for a PPP loan.
Form 2483 is the main form that most businesses will use. Form 2483-C is specifically for self-employed individuals who will be applying for a PPP loan using their gross or net income taken from a Schedule C.
If you are not applying with a Schedule C, read on for more information on form 2483. If you are applying using a Schedule C, jump ahead to our overview of form 2483-C.
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Second Draw Ppp Loans
The stimulus legislation created second draw PPP loans for those who:
- Previously received a first draw PPP Loan and has or will use the full amount only for authorized uses by the date the second loan is disbursed
- Have no more than 300 employees and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
More information about qualifying for a second draw PPP loan can be found here.
The calculation for second draw loans is similar to first draw loans with one exception: if your business has a NAICS code beginning in 72 you may qualify for a loan of 3.5 times average monthly payroll. Other businesses will qualify based on 2.5 times average monthly payroll as before.
The March 3, 2021 Interim Final Rule describes the following method for calculating the loan amount:
The maximum amount of a Second Draw PPP Loan to a borrower that has income from self-employment and files an IRS Form 1040, Schedule C, is calculated as follows, depending on whether the borrower has employees:
For a borrower that has income from self-employment and does not have any employees, the maximum loan amount is the lesser of:
the product obtained by multiplying: the net profit or gross income of the borrower in 2019 or 2020, as reported on IRS Form 1040, Schedule C, that is not more than $100,000, divided by 12 and 2.5 .
This amount cannot exceed $29,167 for NAICS code 72 borrowers and $20,833 for all other borrowers.
Prepare For The Application
If you dont see an application on the lenders website, call customer service to find out how to apply and what documents you need to upload. At a minimum, youll likely need to provide verification of payroll costs such as a W-2 as well as 1099 forms and utility bills.
If your business has more than one owner with at least a 20% stake in the company, come up with a plan so you can each fill out the appropriate sections of the application.
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How To Apply For A Paycheck Protection Program Loan
According to the terms of the program, small business owners can apply through existing SBA 7 lenders or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating in the PPP program. Funding for these loans will come directly from these lenders, which in turn will be reimbursed by the SBA.
Each lender may have a different application process, though most will ask for similar information. The SBA has provided a copy of its official Paycheck Protection Program application form, which will likely be a part of many lenders application processes.
Per that application form, business owners will need to provide:
Economic Aid To Hard Small Business Nonprofits And Venues Act
The government launched the Economic Aid to Hard Small Business, Nonprofits, and Venues act on December 27, 2020, under which the second round to PPP, which was in existence from march to august 2020. Good accounting and bookkeeping services are mandatory to keep proper track of your finances and present them as your eligibility benchmark. If you are a sole proprietor, you can look up the best bookkeeping services as per your business.
This new bill strives for two things:
- to provide financial support to the small businesses who could not make it for the PPP loan in the first round
- to allow other eligible companies a second chance to raise a PPP loan.
The second program commenced on March 31, 2020.
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Application Dates For A Round 3 Ppp Loan
As noted above, applications for Round 3 first draw PPP loans from approved community financial institutions started on Mon., Jan. 11, 2021. Second draw applications began on Wed., Jan. 13, followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021. All SBA 7 lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021.
Beware of scammers. Just as with the first two rounds, if you are a small business owner you can anticipate hearing from scammers promising to help you obtain a PPP loan. Only go through approved lenders or the SBA.
Can I Apply For A Second Ppp Loan
If you already got a PPP loan, you may be eligible for a second round of funding that is equal to or greater than the amount you received in your first loan .
On your PPP loan, this is referred to as a Second Draw.
The SBA clarifies that this is not a separate loan, but rather a draw on your existing loan.
When applying for your Second Draw, you must use your SBA loan number from the First Draw.
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How To Calculate Ppp Loan Amount If You Are Self Employed
Here we are focusing on those who are self-employed and who file a Form 1040, Schedule C. As a reminder, the SBA states you may be eligible for a PPP loan if:
- You were in operation on February 15, 2020
- You are an individual with self-employment income
- Your principal place of residence is in the United States and
- You filed or will file a Form 1040 Schedule C for 2019 or 2020.
For those who are self-employed and file a Form 1040, Schedule C, the SBA provides separate calculations based on whether or not you have employees. You will find those below.
Update: On March 3, 2021 the SBA released a new Interim Final Rule that applies to PPP applicants who are self-employed. Prior to this change, self-employed borrowers who file Schedule C used line 31 of their Schedule C to calculate the owners compensation portion of their loan amount. The new calculation provides more flexibility, allowing borrowers to use net profit or gross income.
Note: Do not include payments you make to 1099 contractors in your payroll. They can apply for PPP themselves.
If You Are A Partner In A Partnership
The SBA has previously clarified that while partnerships are eligible for PPP loans, a partner in a partnership may not submit a separate PPP loan application for themselves as a self employed individual. The following methodology should be used to calculate the maximum amount that partnerships can borrow:
Step 1: Compute 2019 payroll costs by adding the following:
2019 Schedule K-1 Net earnings from self-employment of individual U.S.-based general partners that are subject to self-employment tax, multiplied by 0.9235,5 up to $100,000 per partner:
- Compute the net earnings from self-employment of individual U.S.-based general partner that are subject to self-employment tax from box 14a of IRS Form 1065 Schedule K-1 and subtract any section 179 expense deduction claimed in box 12 any unreimbursed partnership expenses claimed and any depletion claimed on oil and gas properties
- if this amount is over $100,000, reduce it to $100,000
- if this amount is less than zero, set this amount at zero
2019 gross wages and tips paid to employees whose principal place of residence is in the United States , up to $100,000 per employee, which can be computed using:
Step 2: Calculate the average monthly payroll costs .
Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.
How to Substantiate Your Income
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Submit A Forgiveness Application To Your Lender
Apply for forgiveness through your loan provider. Wherever you got the PPP loan — either a traditional bank, payroll provider, or online service like PayPal — you need to return there to apply for forgiveness. If you still have a balance on your PPP loan, youll start making payments starting 10 months after the loan period.
The December stimulus package created a simplified path for forgiveness for PPP loans of $150,000 or less. Image source: Author
The late December stimulus package, signed by President Donald Trump, streamlines the forgiveness process for loans of $150,000 or less. Rather than filling out a pages-long application with dozens of attached records, youll fill out a one-page form certifying your loan amount, employee headcount retention, and estimated amount spent on payroll costs.
Borrowers with smaller loans should still consider filling out the longer forgiveness application to ensure they qualify for full forgiveness. Though the one-page application is simpler, youre still required to meet the forgiveness rules.
You have 10 months from the end of the loan period to apply for forgiveness. If you wait too long, loan payments will start coming due at a 1% interest rate.
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What Documents Are Needed For Ppp Forgiveness
Documentation requirements for PPP loan forgiveness can be weighty. Requirements vary depending on which forms you use and how you calculate your loan-related expenses. The three PPP loan forgiveness application forms are:
SBA Form 3508: This is the standard PPP loan forgiveness application.
SBA Form 3508EZ: This simplified version of the standard form requires less documentation. To choose SBA Form 3508EZ, you must have a loan of $150,000 or more and meet one of two sets of criteria:
- No reductions: You did not reduce your number of employees, the average paid hours of your employees, or the salary or wages of your employees by more than 25% between January 1, 2020, and the end of your covered period.
- Impacted operations: You were unable to operate normally during the covered period to comply with federal guidelines from the Department of Health and Human Services, Centers for Disease Control or Occupational Safety and Health Administration.
SBA Form 3508S: The simplest version of SBA Form 3508 is for borrowers with loans of $150,000 or less.
Each of these forms requires a fair amount of calculation. Unless you’re using SBA Form 3508S, which doesn’t require documentation, you’ll also need to back up your calculations with documents, including:
Receipts, orders and purchase orders, canceled checks or account statements for the following:
- Business mortgage interest payments
- Business rent or lease payments
- Business utility payments
Why Is The Ppp Necessary
American businesses did not close on their own accord. The United States government declared a public health emergency.
In order to keep the general public safe, state governments issued stay-at-home orders. These executive orders issued by a states Governor mandated that non-essential businesses close their doors.
At the same time, the government recognized the severe impact that stay-at-home orders would have on the American worker.
Under normal circumstances, a business that is not earning revenue would look to trim payroll. These businesses would have no choice but to lay off or furlough their employees.
Therefore, Congress passed the PPP to keep businesses afloat and employees on the payroll. The PPP is intended to be a temporary measure until the coronavirus pandemic is under control.
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What If I Have Not Filed My 2020 Tax Return For My Business
The SBA does not state that you must file your 2020 tax return before you apply. The good news is that if you want to qualify based on your gross income , youll only need to complete lines 1-7 of your Schedule C to get that number used to calculate your loan amount. For many independent contractors, self-employed individuals and gig workers, that should be pretty simple. Youll find Schedule C instructions here.
Heres what that first section of Schedule C looks like:
Alternatively you may use information from your 2019 Schedule C to qualify instead.
First Draw Ppp Loan If You Have No Employees
If you are self-employed and have no employees, the SBA provides the following instructions in the March 3, 2021 for new PPP loan borrowers:
If you have no employees, use the following methodology to calculate your maximum loan amount:
Step 1: From your 2019 or 2020 IRS Form 1040, Schedule C, you may elect to use either your line 31 net profit amount or your line 7 gross income amount. If this amount is over $100,000, reduce it to $100,000. If both your net profit and gross income are zero or less, you are not eligible for a PPP loan.
Step 2: Calculate the average monthly net profit or gross income amount .
Step 3: Multiply the average monthly net profit or gross income amount from Step 2 by 2.5. This amount cannot exceed $20,833.
This is the amount most self employed borrowers with no employees will use to qualify for a first-time PPP loan.
How to Substantiate Your Income
You must provide the 2019 or 2020 Form 1040 Schedule C with your PPP loan application to substantiate the amount for which you applied. You must also include a 2019 or 2020 IRS Form 1099-MISC detailing non-employee compensation received , invoice, bank statement, or book of record that establishes you are self-employed. If using 2020 to calculate loan amount, this is required regardless of whether you have filed a 2020 tax return with the IRS. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
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How Can The Money Be Used
For all loans, allowable expenses have been expanded to include operations items like software supplier costs protective equipment and workplace modifications to meet health guidelines and damage due to 2020 public disturbances that’s not covered by insurance.
The bill clarifies that group insurance benefits provided by an employer are considered payroll costs, including group life, disability, vision, or dental insurance.
PPP loans continue to cover payroll and operating costs such as rent and utilities.
Round 3 Ppp Application Deadline
The Consolidated Appropriations Act, 2021 extended the Paycheck Protection Program through . However, the PPP funds have been exhausted, meaning the PPP program is no longer available as of May 31, 2021.
The amount of funds made available in the third round totaled $284 billion. Maximum loans of $10 million were available to first-draw borrowers, and loans up to $2 million were offered to second-draw, small business owners.
On March 30, 2021, President Biden signed the Paycheck Protection Program Extension Act, which gave applicants until May 31, 2021, to apply for a PPP loan, extended the covered period to June 30, 2021, and gave lenders until that date to process loans.
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