What we are going to talk about today is the paycheck protection program (PPP). The second round of PPP loans came about as part of the $900 billion COVID relief package. This included $600 stimulus checks for American taxpayers, phased out over a certain amount of income.
For the second round, the good news is that various criteria seem to have been expanded. For instance, the legislation increased unemployment benefits and provided rental assistance for the first time. Additionally, Congress has clarified that both rounds of PPP loans will not be taxed as income.
The second round of PPP loans in 2021 has officially opened, and you have until March 31st to apply. The SBA will guarantee 100% of these loans with no collateral or personal guarantees. The PP loans will have a 1% interest and a term rate of five years.
Like the first round, the loans will be allocated based on a certification that the applicant needs the funds. Applications are available on the SBA website. Importantly, there are new qualifications for the second round:
The SBA also released clarifications on their definition of revenue. Most importantly, this definition does not include the first round PPP loans, which helps in meeting the 25% reduction requirement.
The calculations for this round of PPP loans are the same as for the first round. Basically, you look at the aggregate payroll costs for a year, divide by 12, and multiply by 2.5.
Essentially, you can fund two and a half months of payroll through these loans. Additionally, you cannot claim more than $100,000 per employee. One important caveat is that if you are in the accommodation or food services sector, the monthly payroll amount can be multiplied by 3.5.
The SBA also clarified that a year of payroll costs can be calculated from any consecutive 365-day period, starting January 1st, 2019. You can strategically use whatever time frame maximizes your number of employees and amount of payroll.
It is recommended that you speak to a skilled attorney about how to get the largest loan possible based on these new PPP clarifications. Reach out to the team at Sparks Law today to learn more about the new COVID relief legislation and how you can take advantage of these loans.