On December 27th President Trump signed a much-debated stimulus bill into law. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act is designed to provide relief to individual Americans, small businesses, schools, child care providers, and cultural institutions suffering from the lingering effects of the coronavirus pandemic. 

This bill stands on the shoulders of the CARES Act, which was signed March 27, 2020, and provided a range of programs for small businesses. One of the most impactful programs created through the CARES Act was the Paycheck Protection Program (PPP). 

Under the new Coronavirus Relief Bill, the PPP will receive an additional $284 billion for small businesses. 

Loan applications for round two of the Paycheck Protection Program are now live and processing is slated to begin in mid-January 2021. Start your PPP pre-application now

Just like last time, Divvy is committed to helping our customers and other small businesses take advantage of these offerings to weather the storm. In this article, we’re breaking down everything you need to know about the new PPP, how you can use it for your business, and how it differs from the original PPP and CARES Act.

What you need to know about the COVID Relief Bill

  • The bill provides just over $284 billion in Paycheck Protection Plan funding
  • Applications will likely open up the second week of January, but some lenders are preparing early by gathering documentation
  • Eligibility focuses on smaller businesses: 300 or fewer employees and a reduction in income greater than 25% in at least one quarter of 2020
  • Businesses who have already received a PPP loan are still eligible for this round
  • The loan cap has dropped from $10 million to $2 million for repeat applicants
  • The provisions and extensions of this new stimulus bill will affect all existing PPP loans except those which have already been forgiven
  • The bill offers expanded and extended unemployment benefits
  • Payroll tax repayment has been delayed until the end of 2021

What’s the difference between PPP round one and PPP round two?

First Round PPP Second Round PPP
Amount allocated $350 billion $284 billion
Loan cap $10 million or 2.5x monthly payroll $10 million for first time applicants or $2 million for repeat borrowers
Eligibility 500 or fewer employees 300 or fewer employees

What kind of assistance will be available?

The CARES Act focused primarily on small businesses and covering payroll, and this supplemental bill is no different. Though this stimulus package covers a more diverse range of recipients (notably schools, child care providers, entertainment venues, and cultural institutions), the Small Business Administration’s Paycheck Protection Program zeroes in on small businesses by limiting the size of business that can apply as well as the maximum allowable loan. 

  • First time PPP loans: for businesses who did not apply or accept funds with earlier rounds
  • Repeat PPP loans: for businesses who previously received PPP funds
  • Supplemental PPP loans: for businesses who accepted partial or returned PPP funds from a previous loan
  • EIDL grants: for small business in low-income areas

Who is eligible for the second round of PPP loans?

Small businesses, non-profits, sole proprietors, independent contractors, self-employed individuals, agricultural co-ops, and veterans organizations all qualify for PPP funding so long as they:

  • Have 300 or fewer employees (previously 500 employees)
  • Can demonstrate a 25% reduction in revenue in at least one quarter of 2020 compared to 2019

Your business is NOT eligible for PPP loans if:

  • You have more than 300 employees
  • You are a publicly traded company
  • Your primary function is lobbying
  • 20% of ownership belongs to China
  • You do not normally qualify for SBA loans

Can I apply for second-draw PPP loans if I’ve applied for loan forgiveness for my first PPP loan?

Yes. As long as you used your first PPP loan as outlined you can apply for second-draw PPP loans, so long as you meet all other eligibility requirements (<300 employees, 25% reduction in revenue, etc.).

How do I calculate 25% reduction in revenue?

For most businesses, the calculation will be a simple comparison of gross revenue for a quarter in 2020 compared to the same quarter in 2019. If your business wasn’t in operation for the entirety of 2019, but was in operation before February 15th, 2020, you may compare any subsequent quarter of 2020 to the revenue of the first quarter to demonstrate reduction in revenue. 

First Quarter January 1-March 31
Second Quarter April 1-June 30
Third Quarter July 1-September 30
Fourth Quarter October 1-December 31

During the PPP loan application process, basic calculations will suffice. However, you’ll need to provide full documentation of your revenue calculations for disbursement and forgiveness applications.

How much can I get with a PPP loan?

The general rule of thumb with a PPP loan is 2.5x monthly payroll costs. Businesses will calculate this average by adding up monthly costs and dividing by twelve (seasonal businesses can use a modified 3 month period).

First-time applicants are still eligible for up to $10 million, as specified in the original CARES Act. Second-draw borrowers will be eligible for up to $2 million.

How will loan forgiveness work?

Like the CARES Act, this round of funding will feature loan forgiveness. The Small Business Administration will have a month to produce a simplified one-page loan forgiveness application for loans smaller than $150,000, which makes forgiveness much easier to obtain with this round of funding.

To qualify for forgiveness, 60% of the loan needs to go to payroll costs, with the remaining 40% going to approved operating costs such as rent, utilities, and costs associated with COVID-19 or the public disturbances of 2020 (employee protection upgrades, repairs, etc.). This expands the usage of PPP funds from the original requirements to remain eligible for full forgiveness.

Divvy wants to help your business take advantage of these resources so you can thrive in 2021. You can learn more and prepare your application for PPP loans here.

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