The Economic Aid Act was signed into law on December 27, 2020. Now, the SBA has provided its initial interim final rules (IFRs) related to the Paycheck Protection Program (PPP). The IFRs have provided some clarity, but other questions still remain. These are the things you should be thinking about as of today, January 8, 2021.
In general, if you received an initial PPP draw, you are eligible for a second PPP draw if the following two major criteria are met:
- Fewer than 300 employees
- Can demonstrate a 25% gross receipt decline in any quarter in 2020 compared to the same quarter in 2019 (shortcut would be if you simply can demonstrate a 25% gross receipt decline for all of 2020 compared to all of 2019)
Gross receipts are defined in the IFR as:
“[A]ll revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees or commissions, reduced by returns and allowances.”
While more clarification is needed, Meadows Urquhart currently believes “in accordance with the entity’s accounting method” does refer to what an entity utilizes for income tax purposes. Gross receipts do not include proceeds from fixed asset sales, proceeds from transactions with related parties, or sales and use taxes collected from customers.
There will be exceptions but for the most part, if you qualify, many of you will have access to the same amount of PPP funding for draw two as you did for draw one (capped at $2 million). The amount should never be less than draw one unless your draw one loan was over $2 million.
In addition, if your business experienced more than a 50% decline in gross receipts in any one quarter in 2020 when compared to the same quarter in 2019, you may now also be eligible to claim the Employee Retention Credit. There could be potential opportunity here, but many organizations may reconsider how they approach PPP forgiveness for draw one, as businesses can take advantage of both the PPP and the Employee Retention Credit instead of having to pick one—you just can’t claim the same payroll costs for both the PPP and the credit.
We are currently awaiting the SBA to release new PPP applications and, while nothing is written in stone, it does sound like the SBA will be prepared to start accepting applications from lenders as early as next week. If you believe your organization meets the above criteria and you are interested in pursuing a second round of PPP funding, please reach out to us to discuss next steps. Your accountant here at Meadows Urquhart would be happy to assist you, or you can email [email protected].