Paycheck Protection Program (PPP) is a business loan program that’s designed to provide an incentive for small businesses, in order to keep their employees on payroll. It was started in 2020 through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help small businesses, self-employed individuals, some nonprofits, and sole proprietors continue to pay workers.
At Bennett CPA LLC, we are invested in helping small businesses succeed by offering consulting services, tax planning and preparation, and more for individuals and businesses in Colorado Springs. While the PPP program originally closed in late summer last year, it opened back up in 2021 and more businesses are able to apply by May 31st. Would your business benefit from applying for a PPP loan? Should you apply for a PPP loan? We can answer your questions so you can make an educated decision about what’s best for your business.
Who Qualifies for PPP Loans?
There are a number of qualifications that can help you understand if this type of loan is right for you. You qualify to apply for a PPP loan if you have a small business, S or C corporation, LLC, faith-based organization, private nonprofit, tribal group, or veteran group. Restaurants and hospitality businesses can also be eligible if they have 500 or fewer employees per location. You are also eligible if you are self-employed and file a Schedule C with your Form 1040. This includes both sole proprietors and independent contractors.
If you are interested in applying for a PPP loan, you must first understand and confirm that you meet the requirements. These requirements will vary based on if you are looking to apply for your first or second PPP loan.
First Draw PPP Loans
A first draw loan refers to the first PPP loan you are applying for and receiving. You are eligible to apply for your first PPP loan in 2021 if the following applies to your business:
- Your business has been operational since before February 15, 2020
- Your business is still operational and open
- You have 500 or fewer employees (Should your business have multiple locations, you have 500 or fewer employees at each location)
Second Draw PPP Loans
If you have already applied for and received a PPP loan, you may be eligible for a second draw loan. If the following applies to your business, you are eligible to apply for a second PPP loan in 2021:
- You have used up all of your first PPP loan
- Your business has been operational since before February 15, 2020
- Your business is still operational and open
- You have 300 or fewer employees (Should your business have multiple locations, you have 300 or fewer employees at each location)
- You can show a 25% or greater drop in your gross revenue
What Is PPP Loan Forgiveness?
If you are able to qualify for and get a PPP loan, the principal of that loan can be partially or fully forgiven, depending on the circumstances. This loan forgiveness is generally based on what your business used the loan for–it varies depending on whether you used the loan proceeds for maintaining the business and rehiring employees, and to what extent it was used to maintain the wages and hours of your workers.
Businesses can receive loan forgiveness on all of its costs related to payroll, and it may receive forgiveness for an amount of non-payroll costs, only up to 66.67% of the amount of payroll costs. Any amount of the loan spent on unallowable purposes is obviously both ineligible for forgiveness and is fraud.
Is a PPP Loan Right for You?
Many business owners are considering a PPP loan right now, but there are some factors to consider if you’re thinking about applying. For instance, the loan only provides funds to cover specific expenses–payroll, rent, utilities, and some interest–for a total of 8 weeks. The amount of a loan you can receive is also based on your payroll costs, which varies from business to business. This can include salaries, wages, commissions, paid leave and cash tips, severance pay, and other types of compensation given to employees.
When and How Should You Apply?
As mentioned at the beginning, the current deadline to apply for this round of PPP loans is May 31st, 2021. Ideally, you should apply as soon as possible, but there is still time to get your application in before the deadline. Applications have slowed down compared to the first round of PPP loans, however they are given out on a first-come, first-served basis so the quicker you can get your application in, the better.
Business owners can apply to any lender approved by the SBA (Small Business Administration), which also includes any participating credit unions or commercial banks. You must submit an application to a participating lender, who will then send it to the SBA for approval. The SBA then evaluates them on the same day they are received.
The Bottom Line | Bennett CPA LLC
PPP loans are available for many small businesses who are in need right now. It can be a beneficial resource to help you keep your doors open and pay your employees. Whether you have applied before or not, there are many considerations and qualifications to consider. Bennett CPA can help you in the process. We take care of your tax needs with clarity, efficiency, and simplicity. Whether you are looking at applying for a PPP loan or considering what other options are available to you, contact us today so we can help you with your business services or individual services.
