What to Know When Making use of for a Second PPP Mortgage

Andrea Herrera, President of Amazing Edibles Gourmet Catering and founder of Boxperience

Angela Garbot

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic tested her ability to adapt to falling revenues on the fly.

Since last March, the company has switched from catering weddings and corporate events to first aid meals and home meal delivery services.

Herrera also opened a new store, Boxperience, a service that delivers gourmet snack boxes.

Creativity aside, their ventures continue to suffer the brunt of the pandemic. Herrera laid off about 80% of its employees in March last year when customers canceled events and stay at home orders went into effect.

A patchwork of funding sources, including state and local grants and a $ 144,000 unsuccessful loan under the Paycheck Protection Program, has kept her afloat.

Herrera, like many other small business owners, is counting on a second loan through PPP to get them through the spring.

“I am confident that this will take us by May,” she said, “and that in Chicago with the vaccines things will be open again and we will have events with 50 to 100 people.”

The U.S. Small Business Administration resumed its loan program on Jan. 11 after Congress approved up to $ 284 billion under the Covid Relief Act, which came into effect in late 2020.

Most secondary borrowers can borrow a maximum loan amount of 2.5 times their average monthly wage bill for 2019 or 2020 up to $ 2 million.

Accommodation and catering companies – like Herrera – can borrow up to 3.5 times their average monthly wage costs for 2019 or 2020. These companies are also subject to a $ 2 million limit.

Whether 3½ months of payroll will be enough to get food and hospitality businesses through the introduction of the vaccine is up in the air. But companies in dire need of help are likely to ask for an application.

“The appetite may be a little bigger this time around as many business owners know what to expect,” said Nicole Davis, CPA and founder of Butler-Davis in Conyers, Georgia.

“This time there are still more hurdles to overcome to get the loan.”

Stricter standards

The SBA set three basic standards that secondary borrowers must meet in order to apply for a forgivable loan.

First, they must have already received a first-draw PPP loan and either have used or are using the full amount of funding for authorized purposes. Second, these companies cannot employ more than 300 people.

After all, they need to show that gross revenue fell by at least 25% in a quarter between 2019 and 2020.

What small businesses may not know is that banks may have their own expectations when the time comes to ask for more money.

For example, banks might require proof that your company has suffered a blow.

“You never know what the bank is going to ask for,” said Campion J. Ellis, CPA and owner of CJE Associates, Indianapolis.

“If you’re the one who does things in QuickBooks, do your quarterly income statements year over year,” he said.

There is no second income. I see this second round of PPP in how I support my family and this business.

Nick Muzzatti

Owner of Snap Entertainment

Additionally, some lenders nudge their customers to issue their first round of PPP loans before they can apply for a second round of funding – although the SBA doesn’t require it, according to tax professionals.

While PPP loans are typically issued when borrowers are spending at least 60% of the funds on wage and payroll costs, tax professionals have so far held back to seek forgiveness.

This is because many of them want to check whether the same customers can benefit from the new provisions of the Covid Aid Act at the end of the year, including the expansion of the employee loyalty loan.

More from Smart Tax Planning:
How unemployment could create a surprising tax burden in 2020
IRS is delaying the start of the tax season until February 12th
Biden’s stimulus proposal increases those tax credits for families

These characteristics could affect the tax planning picture for small businesses.

“I know none of my clients have asked for forgiveness,” said Adam Markowitz, registered agent and vice president at Howard L. Markowitz PA CPA in Leesburg, Florida.

“The web of problems that arises here because the banks are desperate is bad,” he said. “It’s bad for the consumer.”

Advantages of a team

RG Trade | E + | Getty Images

Before turning to the bank for a second round of funding, small businesses need to make sure they are ready to provide documentation – including their income statements and payroll information.

You should also seek help from a tax advisor to walk them through the process, ensure they are eligible for more funding, and determine if they could benefit from important employer tax credits.

Tax professionals and small businesses have also spoken favorably of their experiences with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, was hoping to have $ 1 million in sales in 2020 and subcontracted his van this summer to make ends meet.

He worked with his accountant and Sandy Spring Bank, a local lender, to obtain a PPP loan of approximately $ 39,000.

His CPA helped him prepare his payroll documents, and it will likely be instrumental in helping him get a second round of PPP funding.

“At this point, I can’t be the only business owner who sees it that way,” Muzzatti said.

“There is no second income,” he said. “I see this second round of PPP in how I support my family and this business.”