Paycheck Protection Program Round Two: See How Your Business Could Benefit
As a response to the continuing economic hardships caused by COVID-19, the government has agreed to release a second round of PPP (Paycheck Protection Program) to help aid struggling small businesses. However, that’s not all. Thanks to recent updates in the original guidelines, businesses who were previously excluded or could not complete the application process will now have an easier time accessing financial assistance. In this episode, Jon Aidukonis and Gene Marks highlight several important details that small business owners need to be aware of with this upcoming round of PPP.
0:21 —Today’s Topic: What Should Small Business Owners Know about the Second Round of PPP?
1:39 —In order to qualify for this second round of PPP loans, your business must have less than 300 employees; be experiencing a revenue loss of 25%; and use 2.5 times its payroll costs. Your business also cannot be a publicly held company or have more than 20% owned by a Chinese company.
4:01 —Under the Shuttered Venue Operator Grant Program, those who produce, promote, operate, or own a live venue could potentially qualify for a grant of up to $10 million. However, this grant cannot be used in conjunction with another PPP loan.
6:05 —There is a rolling acceptance for the Shuttered Venue Operator Grant Program that prioritizes small businesses by how much revenue they’ve lost.
8:38 —Any business costs accrued by HR, accounting, supplier or property maintenance expenses are now all considered forgivable according to the new PPP.
12:34 —If your loan has already been forgiven, you will not incur a tax assessment or penalty.
13:17 —The entire loan application process has been simplified so that more businesses can benefit from the program. However, it’s a good idea to keep all your loan-related documents for at least four years.
16:58 —You need to go through a member bank, not the SBA (Small Business Administration), to apply for these PPP loans.
17:20 —There are certain loans that have been set aside specifically for minority-owned businesses or businesses that are located in low or moderate income areas.
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Jon: Good morning and welcome back to Small Biz Ahead, a podcast presented by the Hartford. This is Jon Aidukonis and I am joined today for a special edition with my friend and cohost Gene Marks. We are here to talk about the recent legislation in the economic aid for small businesses in this most recent COVID relief package. A lot of new things, a lot of updates and changes to the PPP, some new guidelines, regulations, tax credits, a lot that people need to know. So, excited to jump right in, but before we do Gene, how’s it going?
Gene: It’s going okay and Jon, I know you and I are speaking now in the morning, but let’s not forget Jon, that there are probably people listening to this where it is not morning at some point. So if that is you, let us all just say good afternoon or good evening, so just to make sure it’s applied across the board. Fair enough?
Jon: That is very fair. It’s true. Welcome one, welcome all. All right then. Yeah. So getting into it. So we’re doing this the day before Christmas, right? It’s December 24th, 2020. We’re all anxiously on our heels waiting to see what’s going to come out of some of these legislative conversations on the Hill right now, but some good movement, it seems like on the government relief to small businesses in this most recent package. So assuming all goes well, but as we think about the most recent COVID relief package maybe Gene, we can start with what’s the new definition of a small business, because it seems like that’s changed a little bit in this, right?
Gene: Yeah. It has Jon. So the whole point with this new relief package is that there is another round of Paycheck Protection Program, PPP. So that’s very good news. However, Congress is trying to avoid some of the mistakes that it made in the past, whereas giving loans to two big businesses, publicly held companies, even people that just really shouldn’t have gotten them. So for starters, they changed the definition of a small business. So now you can only apply for another round of PPP if first of all, you used up the last round… the first round of PPP and number two, you’ve got less than 300 employees. That’s another requirement. And this is new, you have to show that you were impacted by COVID, which means that you have to show that you’ve got… your revenue in any given quarter this year was 25% less than the same quarter from last year.
Gene: So as you can pick out any one quarter this year and if it was below 25% compared to the comparable quarter from last year, then you’re eligible for a new PPP loan or a second round of PPP loans as well. The other thing that should also be mentioned is that the calculation for the loan is still the same in that you’re using your payroll and related cost times 2.5. So that’s all still the same. However, if you’re in the restaurant or the accommodation industry you can now use a factor of 3.5 times your payroll and related costs for whatever period that you choose this to be. And therefore it is, the eight or the 24-week period. So therefore it is a… we’re giving more money to restaurants and people in the accommodation industry.
Gene: So recap, 300 employees or less. Got to show that you’ve lost 25% of your revenue, one quarter versus another quarter last year. And then also you’re either 2.5 times your payroll costs for the eight or 24-week forgiveness period that you choose, or 3.5 times if you’re a restaurant. And finally, the maximum known loan now is now $2 million. You can’t be a publicly held company. So be aware of that. And you also can’t be in certain industries like a political lobbyist or more than 20% owned by a Chinese company. So those are some of the requirements you need to keep in mind for another round of PPP.
Jon: Got it. And, we’ll probably jump into it in a second but there seems to be a new grant program that was announced too, the Shuttered Venue Operator Grant Program.
Jon: So if you’re someone who’s in one of those kinds of entertainment industries, and you’re applying for that, that would actually make you ineligible for a PPP loan as well, right?
Gene: Yeah. Great point. Great point. And by the way, thanks for bringing that up. First of all, of course you’re bringing that up because you’re a former restaurant guy, right? So that hits like right… right? I mean, that’s meat and potatoes for you. You want to know about that. So let’s talk about that. It’s called the Shuttered Venue Operator Grant Program. You’re absolutely right, Jon, that if you got a PPP loan, you can’t apply for this program. You’d be ineligible for it. So you have to choose. But the government put aside $15 billion for the Small Business Administration, the SBA, to make grants. These are not loans. They’re grants if you’re a live venue operator or a promoter, if you’re a theatrical producer, if you are the owner of a live performing arts organization, if you operate a museum, if you’re a theater, if you’re an independent movie theater, for example, or even if you’re a representative of a talent. I mean, basically these are people in the arts industries.
Gene: Again, you also had that 25 reduction in revenues and you’ve got less than… There’s certain amounts, if you’ve got less than 50 employees you can even be entitled to more money. So, there’s an initial grant that you can get up to $10 million, which is pretty amazing. And you can even get another supplemental grant on top of that, depending on what your economic circumstances are. The only requirement is you’ve got to use the grant money for things like payroll costs, rent, and utilities and PPE as well. So the bottom line is though, is that if you were in the arts industry, go to the SBA’s website at sba.gov. Keep a very close eye out. As soon as the grant application becomes available, and it should be in the next few weeks, apply because this is free money that you can be getting to help sustain you through the remainder of COVID.
Jon: So Gene, so that’s really interesting. I’m wondering too, it’s more of kind of a rolling acceptance on this grant program, right? So even though you have the same kind of 25% reduction that you have to meet, the way that they’re prioritizing it is actually really going to be based on need, right? So the first couple of weeks, it looks like the law says that folks who saw 90% or greater revenue loss will be the first round of eligible than those who saw 70% and kind of work their way up to people who might have more of a sustaining model?
Gene: Correct. Yo, the rule is once this program gets rolled out there are some special considerations for those companies in the arts business that really have a need. So the first 14 days of the new program, the money is going to go to those organizations that have seen a 90% or greater revenue loss. The next 14 days will go to those arts organizations that saw a 70% or greater revenue loss. And then after… basically after the first month of the program, it’s going to be open to anybody in the arts business that has had a 25% or greater revenue loss compared to a prior period which will be determined. Again, I’m not sure if it’s quarterly or annually, so that will be determined when the application comes out.
Jon: Got it. Okay. So I think that’s kind of a great place for some of these folks to start, right? So if you’re someone who has an independent movie theater or kind of a museum gallery, to your point, you’re a promoter, or you’re in this live venue space, and maybe you weren’t into a phase four or five reopening, you never had the chance to reopen at all.
Jon: There might be some grant money available to you, kind of, before you have to look for a loan or even a forgivable loan. So definitely something to take note.
Gene: You’re absolutely right. You’re absolutely right. My only issue with that rule, I just want to say is that it needs to be spent on payroll costs, rent utilities, or personal protective equipment. So first of all, the good news is that there’s no ratio like it is with the Paycheck Protection Program where 60% of the money has to be spent on payroll. I mean, if you’re running a theater and you don’t have any shows going on because it’s COVID right? so you don’t really have any payroll. Okay. You can still take that grant money and use it to cover your rent and your utilities, or any PPE that you’re putting into your theater. Planning ahead for the future. So it has to be spent on those certain things but you don’t have to deal with that ratio that the PPP program makes you deal with. You could just spend the money on rent if that’s what it turns out to be.
Jon: Okay. And then talking about PPP, they did change some of the rules on what’s forgivable, right? So it looks like that’s a little bit broader than it was last time.
Gene: Yeah, they did, which is good news. So the original rules are, just so we know, is that you can get forgiveness for any payroll or payroll-related expenses and that includes employer group insurance, disability insurance, dental insurance. All that’s included. You can also get forgiveness for any rent that you pay, and that’s not just rents on your property, but rents for a forklift or for cars. So that’s all been in cased and also any mortgage interest. Now it’s been expanded. So if you spend any money on software or cloud computing expenses or other HR and accounting needs… it’s such a wide definition, Jon, your expenses can be… related to those things, be forgivable. Any property damage costs that you’ve had due to public disturbances. So I know a lot of businesses here in the Philly area that had some real property damage in the riots that happened in the city back in May, they can get covered now under PPP, as a forgivable expense.
Gene: Any supplier costs, like if you’re buying stuff or for goods that you need, particularly for your perishable goods. So they’re allowing you to use that. And finally, any worker production expenditures like PPE. So I haven’t thought about it too hard, but as an accountant, I’m like, I’m not quite sure what they’re excluding here at this point, you know? We’ve got operations, we’ve got property expenses, we’ve got supplier costs, we’ve got your worker protection, payroll, rent, utilities. So it’s really been expanded to cover a lot of different expenses of a business. And I think the walkaway is you really should have very few problems applying for forgiveness when that time comes in this second round. I mean, the government and Congress are really trying to make it easier for you to include as many expenses as possible.
Jon: Well, I think that’s great because I think, especially when we think outside of the more immediately thought-of businesses just based on their class, there’s a lot of brick and mortar retail, and kind of these main street shops who maybe needed to pivot to something more digital, right? So are they selling online now or were they able to kind of make that move at all because they didn’t have the income to get online?
Gene: Yeah, you’re right and not only that, there’s a lot of people, a lot of businesses that had to send their workers home. So they needed cloud applications for them to do what they got to do. That’s a cost. And getting back to your retail point and restaurant point, and you would know this more than me, but I don’t know how these restaurant owners are ordering food. How do they even project demand when you’ve got these restrictions and then the restrictions are lifted and then the weather is bad and nobody shows up and then the weather is good and people can eat outdoors. It’s brutal. But if you’re a restaurant owner and you buy perishable meats and you only use half of it because people didn’t show up because of restrictions you can still use those expenses for forgivable expenses under PPP. So that’s definitely a help.
Jon: No for sure. Yeah. I’m with you. I don’t know. Well, I think that most restaurant operators are pretty good at forecasting based on trends, but this is not a trend of all time for sure. You see things like reduced unlimited menus to try and kind of solve for that as best they can but you can only have preserve produce and meat for so long, right?
Gene: I agree. And it’s a great, great topic for another podcast, Jon. We should talk to some restaurant owners about how they’re doing that.
Jon: Yeah, no. We’d be interested for sure. So I think those are some of the big things in what you can use the money for but I think the other rumor on the street, is this rumor about if you took a forgivable loan before you’d have to pay some kind of tax assessment. That’s not true anymore, right? So-
Jon:… so if your loan is forgiven, it’s truly forgiven and you’re not going to see a tax penalty for that.
Gene: You know what, Jon? I’m not even going to get into it because to explain what was deductible and not deductible before this was like… Oh God. The bottom line is this, if you’re a business owner, you get a PPP loan, you don’t have to worry about taxes. The loan is forgivable and any expenses that you use for forgiveness are deductible. You’re good. You don’t have to worry anymore. Worry about other stuff.
Jon: We like that. One less thing to worry about, especially this year, right?
Jon: And talking about that to you, it feels like if I go back to last year, a lot of chatter on the application process and the application itself, it was confusing, people weren’t really sure how to get to the numbers that they needed. Once they had an application, they weren’t entirely sure what to do with it all the time. And it feels like… especially for some of the more kind of micro loans, they’ve really simplified that process and the data that you need, right?
Gene: Thank God. Yeah. I mean, what they’ve done now is they’re like, “Listen, well, basically, if you’ve got a loan for under a $150,000, we’re pretty much just going to give you blanket forgiveness. All you need to do is you’ve got to fill out just a one page form, certifying that your numbers are correct and that you used what you used for… yeah, the definition of forgivable expenses.” And that’s all you need to do. You don’t have to submit any documentation or to do any calculations. Nothing like that. And your banker will have that form for you. So get it from your banker when it’s available. Just be aware though, of course, that if there’s any suspected fraud involved, then the SBA and the banks are still under obligation to investigate that.
Gene: And they may request documentation from you, which is why you really want to hold on to everything for about four years, is what’s required. It’s three to four years but I say four years. Keep all the documentation around just in case. But again, if you’ve got under $150,000 loan, which is the broad… It’s something like 85% of the loans that went out were under a $150,000. It’s going to just clear up a lot of headaches. That’s why we were telling all of our clients, “Just wait until this bill comes out because why go through the whole process of forgiveness with your bank when all you need to do is just do this very simple step.” And that’s the case. Now, if you have a more than a $150,000 loan, you’re going to have to go through the forgiveness process, fill out the application and provide documentation. But that’s what that is. So I think it will make life a lot easier for a lot of us.
Jon: And I think additionally, it seems like they also expanded a little bit on who is eligible in terms of classes, right? So some interesting kind of rule or accommodation for what I would call like local journalism centers and local media. So it looks like FCC license holders are now kind of avail or eligible to apply, like specifically in those kinds of community hubs where it’s probably 500 or less people. And they’re trying to keep their neighborhoods informed and updated.
Gene: Absolutely. I mean, the media news organizations, veterans organizations… and by the way, if you’re a self-employed individual or a sole proprietor or an independent contractor, you’re absolutely still eligible for all of this. So it’s been expanded a little bit. The only thing they’re going after is any political lobbyists or people… companies affiliated with China. So those are the sort of like the big no-nos. Other than that nonprofits, religious organizations, most of them can also apply for PPP as well.
Jon: Okay. And so it looks like they’re trying to kind of think on the other side, so destination marketing organizations, and it looks like some chamber groups are in the game. So if you’re trying to really kind of encourage people to return back to your communities, some thought there as well. So kind of that membership chamber business league space.
Jon: All right, Gene. So that’s a lot of new and different things on this next round of PPPs. So anything that you have in your noggin or any other thoughts you want to share that… for our audience as they think about maybe applying for one of these loans or maybe a second one?
Gene: Yeah, Jon. Just to keep in mind again and again, if you’ve been through this process before you already know this, but you’re not going to the SBA for your loan, you got to go through a member bank. So that’s really important. And you got to look for an SBA and if you go to the sba.gov website, you’ll see a list of member banks. Very, very, also important to know that if you are a minority-owned business or you are located in a low to moderate income area, and there’s a separate definition for that, which you can look up, there is special set-asides for money. I mean, $15 billion for an initial loan or 25 billion for a second PPP loan and this money has been given out to mission community lenders, like Community Development Financial Institutions. They’re called CDFIs.
Gene: Certified development companies, SBA microloan intermediaries. I guess what I’m saying is that if you’re female-owned, if you’re Black-owned, if you’re Latino-owned, if you’re a minority-owned business, the government is making special, special considerations to get money to you. So talk to a bank and research the minority lending organizations that are out there cause they’re being funneled this money and that money is for you. So you’ve got to take the initiative, but once you do, I’m telling you there is money out there for you for special combinations for minority businesses so take advantage of that. That’s my final sort of takeaway when it comes to all things PPP, Jon.
Jon: Awesome. Well, thank you for that. No. And for sure, I think that kind of tied to this seems to be a re-up in a lot of the community-based funding and grant programs that the SBA kind of had a role in. So definitely talk to your community organizations, your lenders, because it feels like there’s a significant amount of resource for once for the small business owners as part of this relief package. So hope you can kind of take advantage of that.
Jon: All right, my friends. Well, enjoy the rest of your day or evening or whatever time it is where you are and we’ll catch you on the next one.
Gene: Sounds good. Thanks everybody for joining us. And for more information to help you run your small business, please visit the Small Biz Ahead website, smallbizahead.com. You’ll get lots of different articles. I’m very active on there, writing as well as commenting on different comments and answering questions. So join there and you’ll be able to hopefully get some information to help you run your business.
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