H.R. 133, Consolidated Appropriations Act, 2021 (Dec. 29, 2020) authorized Round 2 of the Paycheck Protection Program allowing those who participated in Round 1 to take a “Second Draw” if they meet specific requirements. It also Reopened Round 1 of the Paycheck Protection Program, so that those who did not get in on the first round that ended in August of 2020 can now apply.  This law also changed the requirements for qualification for and use of PPP funds,  created extensions to certain related programs, and allocated more funding to the Emergency Injury Disaster Loan and re-funding and re-opening the EIDL Grant Program.

BIG NEWS! EIDL Grants no longer reduce PPP forgiveness eligibility amounts! 

If you had your PPP first round forgiveness level reduced by your EIDL Grant Amount you can Follow Up and request that amount ALSO be forgiven. Banks should create a process for this soon. Follow up with your bank.

If you did not yet apply for EIDL Grant, you do not have to worry about EIDL grant reducing PPP forgiveness, so you may want to apply for EIDL grant now.  SBA promises a new EIDL platform soon, check SBA.gov for more information. To qualify for EIDL Grant, you must show significant losses from 2020.

• You must have been in business as of February 15, 2020.
• For either of Q1, Q2, Q3 or Q4 of 2020 you must have Gross receipts down 25% from same quarter in 2019, or show you were down 25% for the year 2020 Gross Receipts as opposed to 2019 Gross Receipts. If you were not in Business for all of 2019, but you were in business as of February 15, 2020 special rules apply.
• You Have or Will Spend All of Round 1 PPP Money On Approved Expenses ONLY before you receive the Second Draw (New rule by SBA Interim Final Rule from 1/7/2020).
• You can certify in good faith that: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

§ 121.104 How does SBA calculate annual receipts?

(a) Receipts means all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 1065 for partnerships; Form 1040, Schedule F for farms; Form 1040, Schedule C for other sole proprietorships)

Are you Down 25%?

For businesses that were not in business for all of 2019, so they have no way to compare 2020 to 2019 quarters:

If You were in business 2019 Q3 and Q4, & Had gross receipts during the first, second, third, or fourth quarter of 2020 – You must demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the third or fourth quarter of 2019;

If you were NOT in business first, second, or third Q of 2019, but were in business during the fourth Q of 2019, you must show you had gross receipts during the first, second, third, or, fourth Q of 2020, that were more than 25% below gross receipts of Q4 2019

You must apply with a bank that is approved by the SBA to offer Paycheck Protection Loans. If you received a First Round PPP loan, you may want to follow up with that bank.

There are many banks offering PPP loans, but they will often prioritize current customers.

One bank known to work with most borrowers is Cross River Bank.

Make sure to work with a reputable lender. If someone is charging you high amounts upfront, they are likely not a legitimate source. It is free to apply for the PPP loan. If you need assistance, you can hire Donaldson Legal Counseling PLLC to assist you with your filing or calculations. Just email us at counsel@dlcesq.com or call (301) 332-2354.

Generally: (For businesses that are not seasonal and are not in NAICS Code 72)

2.5 x The average total monthly payment for Payroll Costs incurred or paid by the eligible entity during either

A) the 1-year period before the date on which the loan is made or

(b) calendar year 2019

Capped at $2,000,000.

Note: Payroll Costs is a defined term. See next Question to understand what all is included.

Special Treatment

Any Entity with NAICS Code 72 – Accommodation and food service businesses

Can borrow:

3.5 x the average total monthly payment for payroll costs incurred or paid by the eligible entity during—

a) the 1-year period before the date on which the loan is made; or

b) calendar year 2019

Capped at $2,000,000.

“Payroll costs” include all of the following:

• Compensation to employees that is a salary, wage, commission, or similar compensation; payment of cash tip or equivalent;
• (Each employee is capped at $100,000.00.  So if an employee made $150,000, you can only count $100,000 toward the payroll calculation)
• payment for vacation, parental, family, medical, or sick leave (Not Families First Corona Virus Response Act Leave);
• allowance for dismissal or separation;
• payment required for the provisions of group health care benefits, including insurance premiums;
• payment of any retirement benefit; or
• Disability insurance or life insurance paid by company;
• payment of State or local tax assessed on the compensation of employees;
• As to Sole Proprietors and Owners of LLCs or Partnerships:
• the sum of payments of any compensation to or income of a sole proprietor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period.

However, “Payroll costs” specifically exclude compensation of an employee whose principal place of residence is outside of the United States and taxes under the IRS Code of 1986 Chapters 21, 22 or 24.

Payroll Expenses, (You are Required to use 60% on Payroll to Qualify for Full Foregiveness)

Employee salaries, commissions, or similar compensations,

Continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;

Payments of interest on any mortgage obligation;

Rent (including rent under a lease agreement);

Utilities;

Interest on any other debt obligations that were incurred before the covered period

Covered operations expenditure: A payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses; Ex: Quickbooks, Salesforce, Etc.

Covered property damage costs: a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation

Covered worker protection expenditures:  Things purchased regarding Preventing Coronavirus Spread including Ventilation; barriers; space expansion indoor or outdoor; Generally, anything related to Coronavirus prevention for the business; PPE; Health screening tools;

Covered Supplier Costs:  For Supply of goods that- A) are essential to the operations of the entity at the time at which the expenditure is made; and (B) is made pursuant to a contract in effect at any time before the covered period; or (ii) with respect to perishable goods, in effect before or at any time during the covered period;

The CARES Act states that a portion of the PPA loan may be forgiven, up to the total loan amount, if certain terms are met, subject to the reductions below. Specifically, amounts spent on the following during the 8-week period following the date of the loan may be forgiven, subject to the reductions:

1. 60% must be used on payroll
2. 40% on all other Allowed Expenses (See prior question)

The first type of reduction requires that the amounts available to be forgiven (the “Total Forgiveness Eligibility Amount”) shall be reduced by the amount that is the Total Forgiveness Eligibility Amount times the quotient of the average number of full-time equivalent employees during the 8-week period after the loan date/ (Avg. No. full-time equivalent employees from Jan. 1, 2020 – Feb. 29, 2020 or, Avg. No. full-time equivalent employees from Feb. 15, 2019 – June 30, 2019). The average number of full-time equivalent employees is determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.

Example:
Loan Date: June 1, 2020
Forgiveness Eligibility: $100,000.00
8 – Week Period: June 1, 2020 – July 31, 2020
Avg. Employees During 8-week Period: 5
Jan. 1, 2020 – Feb. 29, 2020: Avg. employees: 13
Feb. 15, 2019 – June 30, 2019: Avg. Employees: 10

$100,000.00 * (5/10) = $50,000.00
Here, the total average employees during the 8-week period is 5. This is divided by the lowest number of average employees during the available periods, which was 10. This total (5/10) was then multiplied by the Total Forgiveness Eligibility Amount of $100,000.00. Therefore, the total reduction of the Total Forgiveness Eligibility Amount is $50,000.00.

The second type of reduction requires that the amount of loan forgiveness be reduced by the same amount as the total amount in reduction in total salary incurred by employees over the 8-week period after the loan date. However, this only applies as to employees who were making $100,000.00 or less in 2019, and where such decrease is over 25% of the employee’s total annual salary, as based on the last full-quarter before the loan date.

Example:
Loan Date: June 1, 2020
Forgiveness Eligibility: $100,000.00
8 – Week Period: June 1, 2020 – July 31, 2020
Avg. Employees During 8-week Period: 5, Three Employees Salaries Stayed the Same
Two employees went from making $90,000.00 to $60,000.00 a 331/3% decrease in salary for each. Therefore, as to each employee, 25% of a decrease in salary would be $67,500.00. This is the lowest amount the employees could have been paid for the employer to avoid a reduction.
However, here, the employees were each paid $60,000.00. So, $7,500.00 is the difference between the 25% reduction and the actual salary paid. Because two employees had their salaries reduced, the total of the reduction would be $15,000.00 total to the Employer, for this portion of the reduction calculation.

Combining the examples,
Loan Date: June 1, 2020
Forgiveness Eligibility: $100,000.00
8 – Week Period: June 1, 2020 – July 31, 2020
Avg. Employees During 8-week Period: 5
Avg. Employees During 8-week Period: 5, Three Employees Salaries Stayed the Same
Jan. 1, 2020 – Feb. 29, 2020: Avg. employees: 13
Feb. 15, 2019 – June 30, 2019: Avg. Employees: 10

Here, the Total Forgiveness Eligibility amount of $100,000.00 is reduced by $50,000 based on reduction type 1, to $50,000.00 remaining. It is then further reduced by $15,000.00 based on reduction type 2, to $35,000.00.

Safe Harbors:   If you meet one of these, you do not have to take a Reduction you would otherwise be required to take.

A. No Penalty for reduction in the number of full-time equivalent employees if, in good faith can document—

(i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and

(ii) an inability to hire similarly qualified employees for unfilled positions on or before end of covered period.

Note: To qualify for this, you need to be able to document your attempt to advertise the job you were trying to hire for and that no-one qualified applied.

B. No Penalty for proportional reduction in the number of full-time equivalent employees if an eligible recipient, in good faith can document:

an inability to return to the same level of business activity from February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the CDC, or the OSHA during the period beginning on March 1, 2020, and ending at end of covered period, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.

**** NOTE General lack of business is not the same as a reduction due to compliance with CDC requirements:

Ex:  If a business’s income is down because it is 100% open, but n0 one is shopping, that would not qualify.

If a business could only allow 25% occupancy, and therefore had to reduce staff due to lack of need, based on following CDC guidance, this would qualify.