SwenAssurePPP - January 25, 2021 Update
In January the Small Business Administration (SBA) and the Internal Revenue Service (IRS) provided further guidance on the COVID-related Tax Relief Act of 2020 signed into law on December 27, 2020 affecting the Paycheck Protection Program (“PPP”). Highlights since our last update on January 11th are as follows:
The SBA provided additional guidance to assist with determining eligibility for and the amount of a Second Draw PPP Loan.
- Eligibility for a Second Draw PPP loan is based on a 25% decrease in 2020 gross receipts over 2019 as follows:
- Determined on a quarterly basis comparing gross receipts for the designated 2020 calendar quarter to gross receipts for the same calendar quarter in 2019.
- Determined on an annual basis comparing gross receipts for calendar 2020 compared to gross receipts for calendar 2019.
- If an entity reports on a fiscal year basis, only determine if gross receipts for the fiscal year, which includes all of the second, third, and fourth calendar quarters of 2020, compared to the same previous fiscal year (i.e., only allowed for fiscal years starting February 1, March 1, or April 1).
- When calculating “gross receipts” for determining eligibility, include items used in the preparation of financial statements and tax returns.
- For for-profit businesses, include all revenue whether received or accrued in accordance with the entity’s accounting method such as sales of products or services, interest, dividends, rents, royalties, fees, and commissions net of returns and allowances, but excluding net capital gains or losses. Does not include pass-through activities on behalf of others such as collection of sales taxes.
- For nonprofit organizations, includes contributions, gifts, grants, dues or assessments from members, sales or receipts from business activities, proceeds from the sale of assets, and investment income including interest, dividends, rents, and royalties.
SBA provided the following guidance as to documentation required to support eligibility which must be submitted with the loan application for loan amounts over $150,000.
- Quarterly financial statements: If not audited, the first page must be signed and dated with subsequent pages initialed and the statements must identify those items which comprise gross receipts if not otherwise apparent.
- Quarterly or monthly bank statements showing deposits with notation which constitute gross receipts and which do not (such as capital infusion).
- Annual IRS income tax filings if using an annual reference period; if the 2020 tax return is not yet filed, the return must be prepared and signed reflecting the information that will be submitted when filed.
SBA provided the following guidance to determine the requested loan amount.
- Based on 2.5x average monthly payroll, excluding excess amounts for employees with annual payroll over $100,000.
- Based on 3.5x average monthly payroll for entities with NAICS Code starting with 72 (i.e., restaurants and hotels), excluding excess amounts for employees with annual payroll over $100,000.
- Average monthly payroll amount can be determined using either 2019 or 2020.
All lenders are now eligible to receive Second Draw PPP applications.
Initial feedback suggests SBA is now reviewing all borrowing applications; first round PPP borrowing applications did not receive similar scrutiny (automatic approval).
Forgiveness is not guaranteed and must ultimately be approved by the Small Business Administration.
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