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

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic tested her ability to adapt amid declining revenues.

Since last March, the company has switched from catering to weddings and corporate events to providing meals for first responders and home delivery services.

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

Creativity aside, its ventures continue to suffer the impact of the pandemic. Herrera fired about 80% of his team last March, when customers canceled events and requests to stay at home began to take effect.

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

Herrera, like many other small business owners, is counting on a second loan through PPP to keep it going through the spring.

“I am hopeful that this will take us through May,” she said, “and that is in Chicago, with the vaccines reopening and we will have events with 50 to 100 people.”

The US Small Business Administration reopened its forgivable loan program on January 11, after Congress authorized up to $ 284 billion as part of Covid’s relief law that went into effect in late 2020.

Most second-time borrowers can borrow up to 2.5 times their average monthly payroll costs for 2019 or 2020, up to $ 2 million.

Companies in the accommodation and food sectors – such as Herrera – can borrow up to 3.5 times their average monthly payroll costs for 2019 or 2020. These companies are also subject to a $ 2 million limit.

If three and a half months of payroll will be enough to keep food and hospitality companies through the launch of the vaccine, it is in the air. But companies in desperate need are likely to cry out to sign up.

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

“There are more obstacles to overcome this time to obtain the loan.”

The SBA has established three basic standards to be met by borrowers a second time for applying for a forgivable loan.

First, they must have already received a first draw PPP loan and used the full amount of the financing – or will use it – for the authorized purposes. Second, these companies cannot have more than 300 employees.

Finally, they must show that they had at least a 25% reduction in gross revenues in a quarter between 2019 and 2020.

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

For example, banks may require proof that your company has been hurt.

“You never know what the bank is going to order,” said Campion J. Ellis, CPA and owner of CJE Associates in Indianapolis.

“If you are someone who does things in QuickBooks, produce your quarterly profit and loss statements for the previous year,” he said.

In addition, some lenders are also nudging their customers so that their first round of PPP loans will be forgiven before allowing them to apply for a second round of financing – although the SBA does not require it, inspectors said.

Although PPP loans are generally forgivable if borrowers spend at least 60% of the financing on payroll expenses, inspectors have not yet asked for forgiveness.

That’s because many of them want to see if those same customers can benefit from new provisions in Covid’s year-end relief law, including expanding employee retention credit.

More from Smart Tax Planning:
How becoming unemployed in 2020 can lead to a surprise tax collection
IRS delays the start of the tax season to February 12
Biden’s stimulus proposal increases these tax credits for families

These resources can affect the tax planning framework for small businesses.

“I know that none of my clients have asked for forgiveness yet,” said Adam Markowitz, enrolled agent and vice president of the Howard L Markowitz PA CPA in Leesburg, Florida.

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

Before contacting the bank for a second round of financing, small businesses must make sure they are ready to provide documentation – including their profit and loss statements and payroll data.

They should also connect a tax professional to guide them through the process, ensure that they qualify for more funding, and determine whether they can benefit from the employer’s top tax credits.

Tax professionals and small businesses also spoke positively of their experience working with local creditors.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, went from hoping to reach $ 1 million in revenue in 2020 to subcontract his trunk truck that summer to help survive.

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

Your CPA has helped you prepare your payroll documents and will likely be instrumental in helping you obtain a second round of PPP financing.

“At this point, I cannot be the only entrepreneur who sees things like that,” said Muzzatti.

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