Small businesses hit by the pandemic recently got some good news – the $900 billion relief act signed into law by President Donald Trump granted additional funding for the Paycheck Protection Program, a forgivable loan program established by the CARES Act.
The $284 billion allocated gives those that weren't approved for the first iteration another chance to apply and allows businesses that have exhausted previous PPP money and have been significantly impacted by the pandemic to apply for a second draw.
It also makes forgiveness easier for businesses that use the majority of the money for payroll and makes the loans tax-free.
Further guidance is set to be released from the U.S. Small Business Administration, and while there is no clear timeline for when applications for the second round will open, experts recommend that small businesses start preparing their paperwork now if they plan to apply.
"The first time [PPP] came out, we were all scrambling, we were all trying to figure out what it meant, what documentation you needed and how the whole plan would work," said Megan Gorman, an attorney and managing partner at Chequers Financial Management in San Francisco.
"Now, while we are waiting for guidance from the SBA, we can tell you a little more and give framework, which is good," she said.
Here's what you'll need to have ready.
If you're applying for a first time loan
If you were rejected in the first round or didn't receive funds, you have a chance to apply again for an initial PPP loan. This time, loans are capped at $2 million as opposed to $10 million previously, but businesses with up to 500 employees are still eligible.
Many small businesses and self-employed individuals were disappointed in the first go of PPP because they didn't have their books in order, Gorman said. This time, the new bill is much more comprehensive about what is needed, she said.
That means businesses and the self-employed should have their tax return materials on file, payments for rent and utilities as well as payroll information and employment records.
"I can't emphasize enough the need to work with your tax professional on this," Gorman said. "This is not an easy process, and tax professionals have really gotten to be very well-versed in PPP over the last eight or nine months."
In addition, if you were rejected the first time, go back to the lender where you applied and see what prevented you from getting approved, Gorman said. That can help you shore up your application for the second round.
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PPP 2.0 – a second loan
The new law also allows some businesses to apply for a second loan. To qualify, businesses must have spent all of their first loan, have less than 300 employees and prove that they lost 25% or more of revenue in any quarter in 2020 either on a quarterly or annual basis.
"During the first round of PPP, a lot of businesses had a hard time even gathering what their net income was because they didn't have proper bookkeeping," said Sheneya Wilson, CPA and founder of Fola Financial in New York. "Now, you kind of have to show comparative statements."
That means businesses will generally need to have their 2019 tax return on hand as well as profit and loss records to show that they've had at least one quarter where revenue fell 25% or more. A tax professional will be able to help businesses make sure they're eligible and have the correct documentation, said Wilson.
These second loans will be made on a similar recommendation to the first round of PPP – 2.5 times payroll costs – and will also be capped at $2 million.
This will be especially helpful for small businesses hit hardest by the pandemic, including industries such as restaurants and hotels, Wilson said.
Get ready to move quickly
Small businesses or self-employed individuals that are planning to apply should prepare to move as quickly as possible once applications are open, according to Anjali Jariwala, a certified financial planner, CPA and founder of Fit Advisors in Torrance, California.
They also want to look for options other than the lender where they got or applied for their first loan, especially if it was 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, fintech lenders such as Kabbage or Square or nonbank lenders like Fountainhead.
If businesses see that another lender has applications open a day earlier, that could make the difference between getting a loan and missing out, Jariwala said.
To be sure, the first iteration of PPP fell short in many ways. Still, experts recommend that businesses that need more help apply for the second round if they are eligible. Experts also pointed out that while it's unclear how forgiveness for the second round will shake out, the new bill generally has made the process easier.
"The biggest concern out there is that people will have been so frustrated by the first round of PPP that they might not consider this round, even if they need it," Gorman said.
"They need to see this as we're on the Titanic and this is the life boat that will help your business survive," she said.
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