Millions of small business owners found the Paycheck Protection Program (PPP) a welcome lifeline in the COVID-19 pandemic’s economic chaos.
As of this writing, the program’s scheduled to end May 31, 2021. Businesses who borrowed money under its second round, or “Second Draw” (PPP2), last winter are asking how to get their loans forgiven.
If you’re a small business owner wondering about the PPP2 program’s rules of forgiveness, Remote Books Online has information you can use.
Reviewing “Second Draw” Loan Terms and Eligibility Requirements
In December 2020, Congress passed the Consolidated Appropriations Act, a second, $900 billion pandemic relief package. This legislation included $284.5 billion to fund a second round of low-interest, easily forgivable loans for businesses—the PPP2 loans.
Like the loans distributed under PPP’s first round, PPP2 loans:
- Had a 1% interest rate.
- Matured after two years if issued before June 5, 2020, or five years if issued after.
- Required no collateral or personal guarantees from borrowers.
- Carried no government or lender fees.
Businesses meeting the following criteria could apply for these Second Draw loans:
- They had no more than 300 employees if they had received a First Draw loan, or no more than 500 if they had not.
- They could demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- If they received a First Draw loan, they spent its full amount on eligible expenses.
As of mid-April, the SBA had approved 2,317,012 Second Draw loans. These loans had an average value of $83,739.
Recalling Differences between First and Second Draw PPP Loans
The Small Business Administration (SBA) determined most businesses could take out PPP2 loans for 2.5 times their average monthly payroll costs in 2019 or 2020 (3.5 times that amount for businesses in the Accommodation and Food Services sector).
But if a business had received a First Draw loan, the Second Draw loan was capped at $2 million, as opposed to $10 million for first-time borrowers.
Other differences between PPP1 and PPP2 included:
- Borrowers could choose an eight-week or 24-week covered period for using the money.
- Self-employed individuals, including sole proprietors and independent contractors who file Form 1040, Schedule C, were eligible, as were faith-based organizations and other non-profits and 501(c)(6) organizations.
- New categories of expenses, such as personal protective equipment (PPE), now qualified as authorized uses. (Keep reading for a list of authorized loan uses.)
Meeting the PPP2 Qualifications for Forgiving Your Loan
The key to determining whether you can get your PPP2 loan forgiven is being able to document that you spent its full amount on authorized uses in the eight- to 24-week period.
As the program’s name indicates, PPP’s primary purpose was to safeguard employees’ jobs and salaries. You must have spent at least 60% of your loan to retain your staff, keeping your company’s payroll expenses and benefits at your pre-pandemic levels.
But if you spent up to the remaining 40% on the following authorized expenses, you can still get your loan’s full amount forgiven:
- Mortgage interest
- Office rent and utilities
- Worker protection costs related to COVID-19
- Uninsured property damage costs caused by vandalism or looting in 2020
- Certain supplier costs and operating expenses (for example: facility upgrades and improvements to conform with COVID-19 safety protocols; cloud computing’ HR systems; and accounting services)
Letting Remote Books Online Help You Apply for PPP Loan Forgiveness
Provided you meet the PPP2 requirements we’ve discussed in this post, you can apply for forgiveness of your loan’s full amount at any time up to its maturity date.
The PPP2 legislation mandated the SBA create, within 24 days of passage, a streamlined forgiveness process for loans under $150,000. The Form 3508S application form is only a page long. It asks you to certify:
- The number of employees you retained using the loan
- The amount of the loan you spent on payroll expenses
- The full amount of your loan
Print out the form and its instructions (six pages total), fill out the form, and submit your completed forgiveness application electronically.
Do keep your physical paperwork and supporting documentation for at least four years in the event you face a lender or SBA audit.
As with any loan, you should consult with your financial and legal professionals when applying for forgiveness.
Should you need help getting your books in order to document how you used your PPP2 loan, we at Remote Books Online can help.
Our range of flexible plans, including catch-up and after-the-fact bookkeeping, start at just $95 a month. You can even get your first month’s books reconciled for free.
Request a quote tailored to your situation, and find out how our Certified QuickBooks Pro Advisors and Xero-Certified Advisors can get you ready to apply for your PPP2 loan forgiveness.