A baker places long shapes of freshly kneaded sourdough on racks for baking at the Reineckers Bakery in Macedonia, Ohio, October 7, 2020.
Ty Wright | Bloomberg | Getty Images
Small businesses hit by the pandemic recently got some good news – the $ 900 billion relief bill, signed by President Donald Trump, added funding to the Paycheck Protection Program, a forgivable loan program established by the CARES Act.
The $ 284 billion allocated will give those who weren’t approved for the first iteration one more opportunity to apply and allow companies that previously ran out of PPP money and were severely affected by the pandemic to have a second draw to apply.
This also makes it easier for companies that spend most of the money on payroll to forgive and make the loans tax free.
Further guidance is expected to be published by the US Small Business Administration. Although there is no clear schedule for opening applications for the second round, experts recommend small businesses prepare their documents now if they want to apply.
“The first time [PPP] We’ve all been trying to figure out what it means, what paperwork you need, and how the whole plan would work, “said Megan Gorman, attorney and managing partner at Checkers Financial Management in San Francisco.
“Now, while we wait for the guidance from the SBA, we can tell you a little more and outline what is good,” she said.
Here’s what you need to have ready.
When you apply for an initial loan
If you were rejected in the first round or did not receive any money, you have the option to apply for a first PPP loan again. This time, loans are capped at $ 2 million, down from $ 10 million previously. However, companies with up to 500 employees are still eligible.
Many small businesses and self-employed people were disappointed when they first started PPP because they didn’t have their books in order, Gorman said. This time the new bill is much more comprehensive of what is needed, she said.
This means that companies and the self-employed should keep their tax return documents, payments for rent and ancillary costs as well as salary information and proof of employment.
“I can’t stress enough that you need to work with your accountant,” said Gorman. “This is not an easy process and tax professionals have become very familiar with PPP over the past eight or nine months.”
The first time you got rejected, go back to the lender you applied to and see what prevented you from getting approved, Gorman said. This can help you to support your application for the second round.
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PPP 2.0 – – a second loan
The new law also allows some companies to apply for a second loan. To qualify, companies must have issued their entire first loan, have fewer than 300 employees, and demonstrate that they lost 25% or more of sales for a quarter in 2020, either quarterly or annually.
“During the first round of PPP, many companies struggled to generate their net income because they did not have proper bookkeeping,” said Sheneya Wilson, CPA and founder of Fola Financial in New York. “Now you have to make comparative statements.”
This means businesses typically need to file their 2019 tax returns and income statements to demonstrate that they have had at least one quarter in which sales have decreased by 25% or more. A tax professional can help companies make sure they are authorized and have the correct records, Wilson said.
These second loans are issued on a recommendation similar to the first round of PPP – 2.5 times the cost of labor – and capped at $ 2 million.
This is especially helpful for small businesses, which are hardest hit by the pandemic, including industries like restaurants and hotels, Wilson said.
You need to see this when we are on the Titanic, and this is the lifeboat that will help your company survive
managing partner, Checkers Financial Management
Get ready to move quickly
According to Anjali Jariwala, Certified Financial Planner, CPA and Founder of Fit Advisors in Torrance, Calif., Small businesses or self-employed professionals wishing to apply should prepare to act as soon as possible once applications are open.
They also want to look for options other than the lender they obtained or applied for their first loan from, especially if it is a larger bank, she said. In the first round of PPP, larger banks had such an influx of applications that they couldn’t approve loans as quickly as smaller banks or fintech lenders like Cabbage, Fountainhead or Square.
If businesses discover that another lender has opened applications the day before, it could mean the difference between getting a loan and missing out, Jariwala said.
However, the first iteration of PPP was inadequate in many ways. However, experts recommend companies that need more help to apply for the second round if they are eligible. Experts also pointed out that while it is unclear how the forgiveness will play out for the second round, the new bill has generally made the process easier.
“The biggest concern out there is that people have been so frustrated by the first round of PPP that they may not consider this round even if they need it,” Gorman said.
“You have to see this when we’re on the Titanic, and this is the lifeboat that will help your company survive,” she said.
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