By now you’ve probably heard it all—you should apply for the Paycheck Protection Program (PPP), you’ll get it. You shouldn’t apply for PPP, you aren’t eligible. No harm in trying—apply for PPP and see what happens. Well, you have to pay to file your 2020 taxes prior to applying for round 2 of PPP, and most business owners do not want to spend the money to do so unless they are eligible to get some money. No one can do a quick summary of all of the PPP criteria, but here is our best attempt at summing it up for you.
Let’s first start by sharing some good news—originally, the deadline to apply was March 31,2021. That has since been extended to May 31, 2021, so if you are eligible, you still have time to apply. If you did not apply for or receive the first round of PPP, your best bet is to apply through Bluevine, SquareUp or Womply, as your bank’s deadlines may have already passed. So now let’s get to the meat and potatoes of the matter: Are you/ Is your business eligible?
According to the Small Business Administration (SBA) the general eligibility is for:
- Those who received round 1 of PPP and used all of the funds received
- First time PPP applicants who meet the below criteria
- Companies with 300 or fewer employees
- Companies who suffered a 25% drop in any quarter’s revenue (gross income) from 2019 to 2020
What they don’t mention is that, in addition to the above criteria, the second round is also open to
- Non-profit organizations
- Housing cooperatives
- Veterans organizations
- Self-employed individuals who pay themselves with a W-2
- Sole proprietors who showed a profit on their 2019 returns
- Independent contractors who pay themselves via W-2
- Seasonal businesses (which operate for no more than seven months out of the year or earned less than 1/3 of its receipts in any six months of the previous year).
Unlike PPP round 1, PPP round 2 allows Green Card or visa holders to apply, not just citizens. This round was also opened to owners with non-fraud related felony convictions, owners who are delinquent on their student loans, trade organizations, chambers of commerce, and non-profits that engage in destination or tourism marketing with 300 or less employees as long as your business is currently functioning (has not shut down).
Have you learned that you are eligible for round 2 of PPP? Good! Now comes the best part—how much are you eligible to get? First time business borrowers are eligible to receive up to 2.5 times their monthly payroll costs, up to $10 million. For those who are sole proprietors, they can borrow 2.5 times the monthly profit reported on their 2019 Schedule C form. Loans for second-time borrowers are restricted to $2 million as long as they meet the above criteria.
If you’re applying for the PPP, make sure you know how the funds can be used. The original intention of the PPP and optimal use for it, is for employee paychecks. 60% of the funds received are expected to go to employees via payroll. The remaining 40% of PPP funds may be used to cover rent, mortgage payments, utilities, personal protective equipment, other expenses to meet government requirements during COVID, property damage, cloud computing and supplier costs. The funds must be spent between eight and twenty-four weeks.
While PPP is considered a loan, any loans used by the abovementioned criteria will be 100% forgiven, even if they did not retain all of their employees. Any amount used for items not mentioned above will carry a 1% interest rate for a term of up to five years.