What to know if you are applying for a second PPP loan

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic has tested its ability to adapt on the fly in a context of declining income.

Since last March, the business has grown from catering for weddings and corporate events to providing meals to first responders and offering home meal delivery services.

Herrera also opened a new business, Boxperience, a gourmet snack box delivery service.

Creativity aside, its businesses continue to suffer the most from the pandemic. Herrera laid off about 80% of its staff last March as customers canceled events and home orders began to take effect.

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

Herrera, like many other small business owners, is counting on a second P3 loan to get through the spring.

“Hopefully that will take us through May,” she said, “and in Chicago, with the vaccines, things will reopen and we will have events with 50 to 100 people.”

The U.S. Small Business Administration reopened its forgivable loan program on January 11 after Congress authorized up to $ 284 billion under the Covid relief law that came into effect late in 2020.

Most second-time borrowers can take a loan amount of up to 2.5 times their average monthly salary costs in 2019 or 2020, up to $ 2 million.

Businesses in the accommodation and food service industries, like Herrera, can borrow up to 3.5 times their average monthly wage costs for 2019 or 2020. These businesses are also subject to a cap of $ 2 million.

The question of whether 3.5 months of payroll will be enough to ensure that companies in the food and hospitality sector can benefit from the deployment of the vaccine. But companies that desperately need it are likely claiming their candidacy.

“The appetite might be a little stronger this time around, now that many business owners know what to expect,” said Nicole Davis, CPA and founder of Butler-Davis in Conyers, Ga. .

“There are more hurdles to jump this time around to get the loan.”

The SBA has established three basic standards that second-time borrowers must meet in order to apply for a forgiveness loan.

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

Finally, they must show that they had at least 25% reduction in their gross revenue in a quarter between 2019 and 2020.

What small businesses may not know is that banks might have their own expectations when it comes to asking for more money.

For example, banks may require proof that your business has been affected.

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

“If you’re someone who does things in QuickBooks, file your quarterly profit and loss statements compared to the period of the previous year,” he said.

Additionally, some lenders are also tricking their clients into canceling their first round of P3 loans before allowing them to apply for a second round of financing – even if the SBA does not require it, the tax experts said.

While PPP loans are generally forgivable if borrowers spend at least 60% of the funding on personnel costs, tax practitioners have so far delayed their request for forgiveness.

That’s because many of them want to see if those same customers can benefit from new provisions in the year-end Covid relief law, including the expansion of employee loyalty credit.

Learn more about smart tax planning:
How being unemployed in 2020 could lead to a surprise tax bill
IRS postpones start of tax season to February 12
Biden’s stimulus proposal increases those tax credits for families

These characteristics could impact small business tax planning.

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

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

Before contacting the bank for a second round of financing, small businesses should make sure they are prepared to provide documentation, including their profit and loss statements and payroll data.

They should also connect a tax expert to walk them through the process, make sure they’re eligible for more funding, and determine if they could qualify for major employer tax credits.

Tax professionals and small businesses also spoke positively about their experience working with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Md., Went from hoping to hit $ 1 million in revenue in 2020 to outsourcing his covered truck that summer to help make ends meet. .

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

His CPA helped him prepare his payroll documents and she will likely help help him get a second round of P3 funding.

“At this point, I can’t be the only business owner to see it like this,” Muzzatti said.

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