What you need to know if you are applying for a second PPP loan

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic has tested its adaptability on the fly in the midst of falling revenues.

Since last March, the firm has gone from catering weddings and corporate events to offering first-response meals and offering home delivery food services.

Herrera also opened a new business, Boxperience, a service that offers boxes of gourmet snacks.

Aside from creativity, their companies continue to bear the brunt of the pandemic. Herrera fired about 80% of its staff last March as customers canceled events and home stay orders began to take effect.

A plot of funding sources, including state and local grants and a $ 144,000 forgivable loan through the Wage Protection Program, have kept it afloat so far.

Herrera, like many other small business owners, has a second loan through PPP to get it during the spring.

“I hope this takes us to May,” he said, “and that in Chicago, with the vaccines that things are reopening and we’ll have events with 50 to 100 people.”

The U.S. Small Business Administration reopened its forgivable lending program on Jan. 11 after Congress authorized up to $ 284 billion as part of the Covid relief law that went into effect late. of 2020.

Most second-time borrowers can get a maximum loan amount of 2.5 times the average monthly cost of the 2019 or 2020 payroll, up to $ 2 million.

Companies in the housing and food services industry, such as Herrera, can claim up to 3.5 times the average monthly payroll cost for 2019 or 2020. These companies also have a limit of 2 million. dollars.

If the 3 and a half months of payroll will be enough to get catering and hospitality companies through the deployment of the vaccine, it is already in the air. But companies that desperately need it are likely to claim an application.

“This appetite may be a little stronger this time around, now that many employers know what to expect,” said Nicole Davis, CPA and founder of Butler-Davis in Conyers, Georgia.

“There are more hurdles to overcome this time to get the loan.”

The SBA set three basic standards for meeting borrowers a second time to apply for a forgivable loan.

First, they must have already received a first-run PPP loan and have used all of the funding (or will use it) for authorized purposes. Second, these companies cannot have more than 300 employees.

Finally, they must demonstrate that they have received at least a 25% reduction in gross revenue in a quarter between 2019 and 2020.

What small businesses may not know is that banks could have their own expectations when it comes time to apply for more money.

For example, banks may ask for proof that your business is successful.

“You never know what the bank will ask for,” said Campion J. Ellis, CPA and owner of CJE Associates in Indianapolis.

“If you’re someone who does things at QuickBooks, produce your quarterly profit and loss statements relative to the previous year’s period,” he said.

In addition, some lenders are also pushing their customers to forgive their first round of PPP loans before allowing them to apply for a second round of financing, even though the SBA does not require it, tax professionals said. .

While PPP loans are usually forgiven if borrowers spend at least 60% of their funding on payroll expenses, so far tax professionals have suspended the forgiveness application.

This is because many of them want to see if these same customers can benefit from new provisions in Covid’s year-end relief law, including the extension of the employee retention credit.

More information about Smart Tax Planning:
How to be unemployed in 2020 can lead to a surprise tax bill
The IRS is delaying the start of the fiscal season until February 12th
Biden’s stimulus proposal boosts these tax credits for families

These functions can affect the business planning landscape of small businesses.

“I know none of my clients have yet apologized,” said Adam Markowitz, registered agent and vice president of Howard L Markowitz PA CPA in Leesburg, Florida.

“The network of problems that is being created here because banks are desperate is bad,” he said. “It’s bad for the consumer.”

Before approaching the bank for a second round of financing, small businesses should make sure they are prepared to provide documentation, including profit and loss statements and payroll data.

They should also link a tax professional to oversee them throughout the process, make sure they meet the requirements for more funding, and determine if they could benefit from key tax credits for employers.

Tax professionals and small businesses have also spoken positively about their experience working with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, went from hoping to earn $ 1 million in revenue in 2020 to outsourcing his van truck that summer to help meet their bosses.

He worked with his accountant and Sandy Spring Bank, a local lender, to get a $ 39,000 PPP loan.

Your CPA helped you prepare your payroll documents and will probably be helpful in helping you get a second round of PPP funding.

“Right now, I can’t be the only entrepreneur who looks at it that way,” Muzzatti said.

“There is no second income,” he said. “I see this second round of PPP as the way to support my family and this business.”