Very soon, maybe right after the holidays, some borrowers will be able to get a second PPP loan. So a second bite at the apple.
Accordingly, I want to provide small business owners who need that help with additional detailed information above and beyond what’s available in most news reports. Folks will want to move quickly to get in line for a second loan.
And, unfortunately, the PPP second draw loan rules are complicated and tricky…
Note: This blog post was originally published in August 2020 and then updated on December 21, 2020.
Who is Eligible for PPP Second Draw Loan
A first thing to know: Only a subset of PPP first round borrowers qualify for a second draw loan.
First, for example, a second-draw-loan borrower generally needs to fall beneath specified size thresholds:
- 300 or fewer employees
- Less than the revenue threshold specified in section 121.201 of Title 13, Code of Federal Regulations (sometimes as low as $1,000,000 but often quite a bit more) or a size that falls under the alternative size standard established under Section 632(a)(5), which is a tangible net worth of the applicant of not more than $15,000,000 or average net income for federal tax purposes of not more than $5,000,000 excluding carry-over losses.
- private and not public.
Second, a firm needs to not fall into a typically ineligible-for-an-SBA-loan category from the lengthy bulleted list that appears here. But this note: If your firm falls into one of the “typically ineligible” categories but the PPP laws or rules have already allowed you to get a first PPP loan, you may be eligible for a second draw loan.
And then a handful of other excluded firm categories exist, too:
- An entity organized for research or for engaging in advocacy in areas such as public policy or political strategy or that otherwise describes itself as a think tank in any public documents;
- Any business concern or entity primarily engaged in political or lobbying activities;
- Any entities affiliated with entities in the People’s Republic of China, the Special Administrative Region of Hong Kong, or that retains as a member of the board of directors a person who is a resident of the People’s Republic of China.
This idea: If you have an attorney, accountant or banker you work with, get their help to determine if you qualify for a second draw loan. And maybe do that ASAP since probably this second wave of borrowing will burn through the remaining PPP money fast.
Note: To provide second draw loans, the SBA will use the leftover money from the original PPP loans and then an additional $150 billion. But that will go really fast, I’m betting.
Qualifying for a Second Draw Loan
A borrower that’s small enough and then not otherwise ineligible due to its operating activities or connections to China must meet another requirement. Its revenues must have dramatically declined.
The simplest situation occurs when a firm’s gross receipts during a quarter of 2020 shrink by 25 percent or more as compared to the same quarter’s gross receipts during 2019.
Example 1. Martha runs a preschool. In 2019, the preschool generated $100,000 in gross receipts each quarter. Gross receipts fell due to the COVID-19 pandemic in 2020, however. In quarter 1, revenues equaled $75,000, for example. And then in quarter 2, revenues equaled $25,000. Martha can qualify for a second draw loan based on the drop in revenue in quarter 1 of 2020. That drop equals 25 percent. And she needs a drop at least that large. Martha can also qualify for a second draw loan based on the drop in revenue in quarter 2 of 2020. That drop in revenue equals 75 percent.
If an entity operated in neither the first or second quarters in 2019 but did operate during the third and fourth quarter, the entity qualifies for a second draw loan if gross receipts for one of the quarters of 2020 drops by 25 percent or more as compared to the gross receipts for the third or fourth quarter of 2019.
Example 2. Martha’s friend, Abigail, started a preschool in the fall of 2019 based, frankly, on the success she saw Martha enjoying. The timing could not have been worst. The third quarter revenue was slow due to the start-up—roughly $25,000. The fourth quarter, enrollment exploded and she recorded $100,000 of gross receipts. In 2020, however, she recorded receipts of $80,000 for the first quarter and $60,000 for the second quarter. Abigail qualifies for a second draw loan based on the 40 percent reduction in revenues that shows up when comparing the second quarter of 2020 to the fourth quarter of 2019.
The second draw loan statute provides a similar grace to someone who started a business in the fourth quarter of 2019. If an entity didn’t operate the first, second or third quarter of 2019 but did operate the fourth quarter and if gross receipts in one quarter of 2020 shrink by 25 percent or more as compared to the fourth quarter of 2019, the firm qualifies for a second draw loan.
Example 3. Abigail’s daughter-in-law Louisa starts a preschool during the fourth quarter of 2019 and booked $40,000 of gross receipts for that quarter. For the first quarter of 2020, she booked $35,000 of gross receipts which isn’t enough of a drop to get her a second draw loan. For the second quarter, however, she booked $20,000 of gross receipts. The drop in revenue from the fourth quarter of 2019 to the second quarter of 2020—the $40,000 to $20,000 drop equals 50 percent—allows Louisa to qualify for a second draw loan.
Finally, if an entity began operations only in 2020 but was in operation on February 15, 2020 and gross receipts for the second quarter of 2020 fall by at least 25 percent of the gross receipts for the first quarter of 2020, the entity qualifies.
Accounting Method for Gross Receipts
The statute leaves unanswered a key question: How a borrower does the accounting used to determine gross receipts.
A quick first guess might be that a borrower simply uses the same accounting method as it does for its tax returns. So, either tax accrual basis or tax cash basis accounting.
One other factor to consider, however, is the borrower-friendly way the SBA has arranged the PPP loan terms. Given that for purposes of determining forgivable payroll and nonpayroll costs the SBA allows a borrower to use both cash basis and accrual basis accounting, a borrower may find the SBA allows them to use any reasonable accounting method that shows the required reductions in gross receipts.
This technical detail, then, bears close monitoring by accountants, attorneys and bankers.
PPP Second Draw Loan Amount Formulas
The second draw loan statute uses almost the same basic PPP loan amount formula as used for the initial PPP loans. But some subtle differences exist.
Default Second Draw Loans
The default, most common second draw loan formula works nearly identical to most borrowers’ original PPP loans. That formula says a second draw loan equals either 2.5 times the average monthly payroll during the 1-year period before the date on which the loan is made. Or the 2.5 times the average monthly payroll during calendar year 2019.
The only real difference? The second draw loan formula limits the loan amount to no more than $2,000,000.
Example 4. Dolley operates a women clothing store and qualifies for a second draw loan based on the $10,000 a month of payroll costs she paid or incurred 2019. The second draw loan amount equals $25,000. That amount matches her original PPP loan amount, which also equaled $25,000 and was also calculated as 2.5 times the $10,000 average monthly payroll in 2019.
Note: The original PPP loan amount formula limited the loan amount to no more than $10,000,000. Note, however, that this $10,000,000 limit will be reduced as part of the Continuing Small Business Recovery and Paycheck Protection Program Act.
Seasonal Employer Second Draw Loans
The second draw loan formula works differently for a seasonal employer.
For a seasonal employer, the second draw loan formula first calculates the average monthly payroll paid or incurred for a 12-week period (quoting the statute) beginning on February 15, 2019 or March 1, 2019, and ending June 30, 2019, or for a consecutive 12-week period between May 1, 2019 and September 15, 2019.
The formula then multiplies this average monthly amount for this 12-week period by 2.5, compares this product to $2,000,000, and sets the second draw loan amount to the lesser of the product or $2,000,000.
Example 5. James and Elizabeth own a wildly popular bar and restaurant in a seasonal tourist destination. They qualify as a seasonal employer and averaged $1,000,000 in monthly payroll costs over the 12-week period the seasonal employer second draw loan formula looks at. Their second draw loan amount however equals $1,000,000. Though 2.5 times $1,000,000 equals $2,500,000, the formula limits their loan to no more than $2,000,000.
New Employer Second Draw Loans
The second draw loan program provides a special formula for new entities.
The statute defines a new entity as an entity that did not exist in the 1-year period before February 15, 2020. And for these folks, the formula calculates the average monthly payroll costs for the months in 2020 the entity operated, multiplies that average monthly amount by 2.5 to get a tentative loan amount, and then again limits the loan to no more than $2,000,000.
Example 6. Stockly Donelson, a new law firm, started operations on March 1, 2020 and averaged $20,000 a month in payroll over the six months before it applied for a second draw loan. It qualifies for a second draw loan equal to $50,000.
Aggregate PPP Loan Limits
The second draw loan rules limit aggregate borrowing by an entity and its affiliates in three ways.
First, the rules say that a borrower receiving multiple second draw loans because it operates multiple locations (like a restaurant chain or a motel operator) can receive no more than $2,000,000 in total.
Second, the rules say that borrowers who have received a PPP loan may not receive another SBA loan that pushes their aggregate borrowing over $10 million.
Third, the rules say that within any 90-day interval or time, a borrower and its affiliates may not receive more than $10,000,000 of guaranteed loans.
Public Disclosures of Second Draw Loans
Probably a borrower won’t know whether the SBA will disclose borrowers receiving second-draw loans when applying. But borrowers and their professional advisors want to consider this wrinkle.
Publicly alerting competitors, employees, supplies and other stakeholders that a firm’s revenues have declined by 25 percent or more may cause significant damage in some situations. And the SBA’s current approach is to provide detailed information about all borrowers who take PPP loans.
Second Draw Loan Forgiveness
Second draw loan forgiveness works like first draw loan forgiveness. A borrower potentially receives forgiveness equal to the sum of its payroll costs, mortgage interest, rent, utility payments, operations expenditures, property damage costs, supplier costs, and worker protection expenditures incurred before January 1, 2021.
Note: The “Continuing Small Business Recovery and Paycheck Protection Program Act” adds four new categories of forgivable spending: operations costs, property damage, supplier costs and worker protection expenditures.
As with first draw loans, at least 60 percent of the forgiveness must stem from spending on payroll costs.
Example 7. Stockly Donelson, the law firm mentioned in the preceding example, received a $50,000 original-version PPP loan and then a $50,000 PPP second draw loan. The firm may receive forgiveness for both loans. To receive full forgiveness, and assuming it will use the 24-week covered period, it needs to spend at least $60,000 on payroll and related costs and any remaining PPP loan money on mortgage interest, rent, utilities, operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
Smallest Firms Targeted with Second Draw Loans
Understandably, perhaps, the statutory language that creates the second draw loan also tweaks the lending process to level the playing field for small borrowers and lenders.
The new loan sets aside $25 billion in funding for entities employing 10 or fewer employees, for example.
Also, it sets aside $10 billion in funding to be made by community financial institutions; insured depository institutions with consolidated assets of less than $10 billion; credit unions with consolidated assets of less than $10 billion; and farm credit system institutions with assets of less than $10 billion.
Finally, it directs the SBA to prioritize under-served communities and issue guidance addressing barriers to access to capital for under-served communities.
Other Resources
The second draw PPP loan application form appears here.
The new PPP statutes change the tax accounting. Here’s a blog post at our CPA firm website that explains: How Taxes Work for PPP Loans.
If a borrower does get another PPP loan, probably it makes sense to look at this blog post: How You Should Have Done Your PPP Loan. In retrospect, many borrowers should have handled their original PPP loans differently.
The full Covid 19 relieft bill appears here: Continuing Small Business Recovery and Paycheck Protection Program Act.
Thank you.
To clarify, if you need the two items above but do not meet the
50%25% decline in year over year revenue, you still don’t qualify for second PPP draw?Not sure I understand your question, perhaps because I’ve fallen down the rabbit hole here, but I would say you need to be an eligible entity (that’s one requirement) and then you need to have that
5025 percent or more than5025 percent decline in revenue.Note: 50 percent edited to 25 percent for law change on 12/21/2020.
I think their question is about your example 3, where you have $40k of revenue that drops to $20k and say they don’t qualify.
hi Kyle, so that’s not very clear writing, is it? Sorry. Ugh.
But here’s how I’m reading the proposed statute… For default second draw loans, the statutory language says you qualify if you
I read that to mean you qualify in the typical, default situation if gross receipts are down 25 percent or more than 25 percent.
For the other loan situations, the phrasing is different. For someone who started their business in fourth quarter of 2019, for example, the language says you qualify if you,had gross receipts during the first or second quarter of 2020 that are less than 50 percent of the amount of the gross receipts of the entity during the third or fourth quarter of 2019I read that to say you need a revenue reduction of more than 50 percent. So going from $40,000 to $20,000 isn’t enough of a reduction. If you start at $40,000, you need to get to $19,999.Note: Edit to reflect actual bill passed on 12/21/2020.
If the gross shrunk by more than 25% in fourth quarter only, the business does NOT qualify?
I am the owner of a C Corp which operates three individual restaurants (different locations). Is the 25% gross receipts loss in the aggregate or individual location in this example? Specifically, one of the three locations meets the 25% loss, however, in the aggregate of all three locations, the gross receipts loss is 20%. Will I be able to file for that one location? Collectively the loss equals by location – 26 percent loss 24 percent loss and 19 percent loss.
I assume you’ll look at the quarterly revenues on a “firm-wide” basis. So all three locations together.
What if my boss already took ppp loans and spent on himself. Truck, skid steer, tele handler, trailers. I spent 55 days home and was told he wouldn’t pay us to stay home. Who do i contact. Im in Barton county kansas.
File for Pua Unemplyment. You are almost guaranteed to get it. Just gotta wait. That also backdate to day u became unemployed. I see ur looking at about 5-20k. They owe
Hello. I applied for the ppp loan the first round and couldn’t find a lender. Are there any advice to what I could do?
Hi Tiffany, so finding a lender really is part of the challenge with these PPP loans. It’s not really consolation, but many small businesses found themselves in your situation. Right now, I think you can still apply for a PPP loan Kabbage. And I would try that this morning. So as soon as you read this.
You might also want to try contacting a small local bank or community bank. They seemed to me to show more interest in small businesses.
The other thing is, the current deadline for what I’ll “first draw loans” ends this week but if the Continuing Small Business Recovery and Paycheck Protection Program Act passes, that deadline gets moved into the future and so hopefully PPP lenders who’ve stopped taking PPP loan applications will start taking them again.
Will the second draw apply to independent contractors as well?
(I did get a PPP loan in the first draw)
Yes.
As an independent contractor that started in 2020 and received the first wave of PPP, how do I show a reduction of revenue? I drive less because I work from home and spend less money of client expenses
So the “test” is based on revenues. In your case, because you started in 2020, you compare second quarter revenues to first quarter.
Stephen, great article, super helpful!
Similar question… does my LLC qualify with the Q2 -> Q1 drop?
LLC created in Q4 2019, $0 revenue that quarter.
Q1 2020 – $47k
Q2 2020 – $28k
Q3 2020 – $32k
Q4 2020 – $0
Will small businesses who meet the decline in revenue requirement, but have not yet spent all the funds from their first PPP, be allowed to apply for a second PPP?
Yes. And maybe one thing to point out, you’ll want to be careful if you’ve got two PPP loans to make sure that you can arrange your spending in a way that lets you get full forgiveness for both loans.
I have a three year old company that w just one employee until Jan 2020. We were at 9 employees in Jan. My first round amounted to 36,000 due to having to calculate using 2019 revenue. I was hoping round two would be based on a 50% drop from q1 to now. Or something of that sort. My gross receipts are down 75% from January.
What about our business? Is there any way to get another PPP?
Thank you.
Hi Jeff, so if I understand your situation, you would need either the first or second quarter of 2020 to be down at least 50 percent as compared to the first or second quarter of 2019. The “thing” that needs to be done is gross receipts, or revenue. And if that’s case, and if Congress passes this bill, you would possibly be eligible a second draw loan.
Is an independent contractor quilified the first time ,could also be qualified the second round,?
If you got a PPP loan the first time, you should be eligible a second time. Absolutely.
Hi – A c-corp received a ppp loan the first round but I saw that eligible entities for the second round are only schedule c/or an llc; s-corp, partnership. is that true?
No, I don’t think that’s right. The changes for PPP loans going forward are basically smaller max loans ($2M now when it used to be $10M), smaller small businesses (300 employee max versus 500 employee max), and then a slightly shorter list of eligible entities. E.g, no adult entertainment businesses, etc.
I am a sole practitioner with no employees.
My office/business was closed down for three months due to COVID-19. I have now reopened, but after 6 weeks am just hitting 50% of my pre COVID-19 business.
I received 6 weeks of PUA and received a PPP loan which has helped get me through this time. When calculating my gross income for 2020, to apply for a second PPP loan, do I have to include the money I received from PUA or PPP? Will PUA and PPP money be taxed? I was about to take out an EIDL loan. Would that impact my eligibility for a second PPP loan? How do we get applications for the second PPP?
Thank you for your help!
Your PUA and PPP loan money don’t count as gross receipts. They won’t impact your eligibility for a second draw loan.
Hi this is Ms Green, I applied in the first round through blue Vine, not realizing my green care was expired they denied my application. If I renew my card can I reapply for the SBA loan. Am an independent contractor with 1 person on pay roll.
I don’t know. Sorry.
Has anyone thought about the real little businesses that have gone out of business because of this pandemic? There is absolutely no one that has offered up help or ideas for those people to survive. They’ve lost thier business, livihood, retirement, family’s income, support, also have gained increased debt, loss of housing, insurances, vehicles, etc.
These people now are in the same position as the homeless. What do they all do or who do they turn to for help? 2 major catagories of people completely forgotten about.
Maggy, I think lots of people are trying to help. E.g., I know our CPA firm as well as many others have helped dozens or even hundreds of clients (usually for free). Congress has appropriated nearly 700 billion dollars–which is a ton. At least one of the banks funding PPP loans (Wells Fargo) is giving up the hundreds of millions of dollars of PPP fees it earned to help small businesses. I know our First Citizens Bank banker helps every small business she can regardless of whether First Citizens Bank can do a PPP loan. (They’ve also sponsored multiple free PPP loan seminars with SBA and local CPAs.) And here, we’ve been blogging on this topic for months and have tried to help the hundreds of thousands of readers who’ve visited. None of this is enough, but we’re trying…
All that said, however, I agree with you that some small businesses and their owners are damaged beyond what many folks can understand. Whenever I hear some talking head on television like a university professor or a physician employed by a large medical center talk about locking down the economy, I regularly sense they don’t understand that what they’re asking some small business owners to accept… that what they’re asking small businesses to accept would be equivalent to asking them (so the tenured professor or the university researcher) to sacrifice not just their job, but then also their academic credentials (so losing their Ph.D. or M.D. and their years of academic publishing credits) and then also their assets and retirement savings.
I am a sole proprietorship. I got PPP funds first round. I started business last June. I do not do quarterly taxes. So how do I seperate into quarters to compare? Is it entirely up to me? Do I also need to show lost revenue of 50%? Can cash basis work instead of accrual? What if my revenue increases after I accept the loan?
You need enough of an accounting system to be able to show that your quarterly revenues have declined to start–and yes, that’s on you. But you should be able to use the same approach to come up with quarterly revenues as you do to come up with annual revenues for your tax return.
I think this is the rule you’ll use:
I think you’ll probably be able to use either cash or accrual accounting. But probably cash is easiest and maybe matches what you use for your tax return?
Also, if your revenue increases after you get a second draw loan–remember we still need the law to pass–that shouldn’t be a problem. That’s what we all want to happen at your business and every other business!
Is a business that started in July 2019 considered a “new employer” as you called out above?
You’re in the category where you’ll need to compare your fourth quarter 2019 revenues to first or second quarter 2020 revenues in order to see if your business is “down” enough to qualify. (This is the case illustrated in example 3 above.)
What if you started a business in late Q4 2019. Like Nov or december? Would you need to compare the partial Q4 or use Q1 2021?
See the blog posts rules for new businesses. It gives details.
Can you post a link? Abigail’s daycare scenario is a little unclear on the timing of the daycare. If opened in December would 2019 Q4 need to be the baseline for comparison or is it the first full quarter – Q12020?
Could you point me to the link? The example of the daycare started in the 4th quarter is unclear if it operated for all 3 months. It seems like if you started a business at some point in Q3 you should use Q4 for comps. Not sure what to use if you started a business in late Q4. Thanks!
I received an EIDL But didn’t apply for Round one PPP. Could I also apply for the 2nd round PPP?
You should apply for a first draw loan. Probably it’s too late given August 8 deadline. But when they move the deadline using the new bill, you should immediately apply for a “first” draw loan.
Hello can you reapply through Kabbage for a second ppp loan
For a second draw loan, which is what you’re referring to, we need to let Congress pass Rubio’s bill.
My boss took a loan and spent on himself. Who supposed to help me . I stayed home to protect people and now they just refuse to wear a mask. Now thrre going to give them a second free loan. This is a joke.
Your boss won’t get forgiveness if he didn’t maintain his employee headcount. The PPP wasn’t perfect. Far from it. But it was written to protect employees.
When and how do we apply for second PPP Loan? Will we have to do that before the August 8th deadline?
No, no, gosh, sorry for sowing confusion… you want to wait until Rubio’s bill passes both houses and President signs. HOWEVER, you want to be ready because this may (will?) turn into a race like the first round…
Hi – I was wondering if our first PPP loan would be counted in our annual gross receipts for this year. We have 50% less gross receipts in Q2 of this year compared to 2019 if you don’t count our PPP loan.
Good question… and it doesn’t count. I.e., you receiving a PPP loan of say $100,000 won’t jack up with your gross receipts by $100,000.
Hello, This may be a bit lengthy but I will do my best. I’m a single mom of 6 children and Sole Proprietor of 2 small businesses. One business has been running going on 4 years, and the second I finalized putting everything together and was available to begin taking Jon’s last December 2019, But did not actually begin to bring in revenue until January 2020. When the PPP program came in to play for self employed sole proprietors, I applied for a ppp loan for my longer running business of close to 4 years and received a PPP loan for $9,100. About a little less than a month later I applied for a PPP for my newest business as this is the best in terms of revenue made and expected future sales. I was denied a PPP loan for my second business and told I would have had to amend my original PPP loan request and it was now too late. Since childcare centers recently resumed I was able to reopen both businesses, however due to the pandemic, it has been off tona VERY SLOW START, and I was relying on PUA benefits etc. My question I have is am I eligible to apply for a second PPP loans should this bill pass, and also this time how would I do it to include both businesses as I was informed that being a sole proprietor I can only file for one business since my taxes are filed as self employed and under my social security number? Hopefully you understand my question and I thank you for your time!
Julie Carlson
For business owner “payroll,” you lump all your businesses together. So, if I understand your question, you can’t get more owner compensation replacement by getting a PPP loan for another business… and it’s not clear whether you have a new second business with employees who generate payroll costs for the new second business that would allow for a PPP for that…
I think, then, that you want to get a second draw loan if you can… and it’ll be another $9,100.
Thank you very much. That’s what I assumed as I own a housekeeping company called “A maid a a mop, and a mom” and then (After the encouragement of my former client’s opened “She dazzles, she does it all”. Sorry for more questions however I do have a couple and you seemingly have great knowledge! The first PPP loan I acquired was through my tiny little Citizens Bank. I figured since I do my banking there,that made most sense and it was successful. Would I again go the same route and utilize the same bank also happens to be my personal business bank to complete a second request for a second PPP loan? Lastly due to my line of buisness (residential and personal housekeeping services etc, buisness has been off to a EXTREMELY slow start combined with the lack the lack of childcare centers just REOPENING my take in revenue is sadly not close to what it normally would be. Will that harm me so to speak because its certainly not for lack of trying and I have 6 children relying on me which makes it very clear, cut, and dry that I must prevail. Thank you again for all the helpful insights ~Julie
No sure I understand your questions and comments completely… sorry… but I think you go back to the same bank for a second draw loan assuming the second draw loan bill passes.
Second, I don’t think you necessarily have two businesses based on the description. It sounds as if you may have two product lines (one called “A Maid, a Mom and a Mop” and one called “She Dazzles, She Does It All”?)… and that would mean you have one business applying for PPP loans.
Many businesses were unable to receive 1st Draw PPP loans (in many cases due to the lack of timely documentation). When the deadline is extended, it appears that they will have an opportunity to receive the 1st Draw PPP loan. First, is that correct? Secondly, will the 1st Draw PPP documentation rules continue, such that we should continue to work to get files 100% ready (even though there will likely be a revised application form)? Third, will businesses then, immediately after receiving the 1st Draw PPP loan, be able to apply for a 2nd Draw PPP loan? And fourth, will a business be able to apply for both a 1st Draw and a 2nd Draw PPP loan at the same time?
hi Winston, So I think businesses that couldn’t get a first PPP loan will get another chance if Rubio’s bill passes.
Also, if Rubio’s bill passes, the loan application process looks the same. It’s the forgiveness process (in particular the documentation required for forgiveness application) that changes a TON…
Regarding applying simultaneously for both a “first draw loan” and a “second draw loan”, that’s a good question. Logically, that should be possible. Nothing in statute says a borrower can’t.
So if the revenue didn’t drop 50% or more the business don’t qualify for 2nd ppp ?How about if revenue only dropped by 25% ?
The revenue drop needs to be 50 percent or more than 50 percent… At least as Rubio’s bill is written.
Some people have remarked that a 25 percent drop (as you use) is brutal enough to put extreme pressure on a firm… so it’s possible the percentage trigger might change?
Hi.
I am a self employed barber who was impacted by the shutdown. Before COVID, I worked at someone else’s barbershop as a booth renter. Since COVID, I have taken a leap of faith and bought a transit van big enough to turn into a mobile barbershop. Im just trying to understand if I will be considered eligible. I actually came up with the idea, got licensed and opened a business checking account last year (prior to the pandemic)
Hi Michael, so first, good luck with your reformatted business model. I think that’s the way we all need to be thinking these days. Second, if I understand your situation, your should (assuming Rubio’s bill passes) be able to get a PPP loan and maybe a second draw loan. You actually have the same business. In past, you rented a booth in a barbershop but you were self-employed and reported your income on a Schedule C form. Now, you have rented a van to use as your mobile booth–but it’s the same business and you will again file a Schedule C form. The PPP loan amount and second draw loan amount will be based on your 2019 Schedule C income. E.g., if you made exactly $4K a month–I’m using round easy numbers–you could get a $10K PPP loan and a $10K second draw loan.
Last comment: Keep your eyes open for the new PPP program. When/if it passes, you need to jump on applying for the PPP loans. Again, good luck!
Hi Stephen,
I was directed by your front desk and another subscriber to your blog to write a comment here; I’ve scrolled through your blogs and searched the comments for some of my keywords but couldn’t find an answer yet; forgive me if you’ve already answered these questions on another blog post/feel free to direct me to those comments.
1. I am a sole member LLC who just got a PPP through a new biz bank account. I intend to spend 100% of the loan on my own payroll. My deductions I take on my taxes mean my 2019 net profits on my Schedule Cs didn’t accurately reflect my average payroll for 2019 (as SBA instructs in their PPP application guidances), so I based my PPP amount ask on a master list of bank statements from 2019 showing my payroll deposits; my PPP loan amount ask was accepted at this higher figure (more than double the Schedule C net profit figure) that averaged those payroll deposits as shown on my 2019 bank statements. My first question is, do you think I’ll run into any problems in the forgiveness application because my PPP amount wasn’t based on my Schedule Cs net profits, but rather on my bank statements showing my actual payroll deposits?
2 . Can I still elect an 8 week covered period for the loan, or do new loans all have to elect the 24 week covered period now? I’m confused about the math of having to stretch my 2.5 months of PPP payroll over 24 weeks without giving myself a pay cut, and thereby make myself ineligible for total forgiveness. This inevitable pay cut math problem doesn’t seem to exist if I elected an 8 week covered period. However, in an 8 week covered period, won’t I have to squeeze 11 weeks of payroll into 8 weeks, and therefore give myself a small pay raise? Would this pay raise make me ineligible for total forgiveness?
3. Does it matter in the forgiveness process if I pay myself from my new PPP biz bank account to my preexisting biz bank account, and then pay myself payroll from that old biz bank account into my personal bank account? Or should I pay myself payroll from my new PPP biz bank account directly into my personal bank account to maximize forgiveness/simplify the documentation I’ll need to submit for the forgiveness application?
4. Does it matter in the forgiveness process if I pay myself the entire PPP loan in one lump sum from the new PPP biz bank account into my personal or preexisting biz bank account, or do I need to spread the PPP payroll deposits out weekly over 8 weeks to be eligible for full forgiveness?
5. Would documenting my PPP payroll deposits from the new biz bank account in a Google Sheet, substantiated by bank account statements showing the deposits were payroll deposits, be sufficient payroll documentation for the forgiveness application? I’m a newb to payroll accounting/don’t understand why or how it needs to be any more complicated than detailing hours worked, pay received, and then substantiating those claims with real bank statements, but maybe there’s something about documenting payroll in forgiveness application I’m not understanding here…
6. I have no intention or desire to double dip PPP and unemployment money, but can I reapply for unemployment after I pay myself the entire PPP amount in payroll? If so, when? Can I reapply for unemployment as soon as I spend the entire PPP on payroll, or do I have to wait 8 weeks after the PPP loan shows up in my new biz bank account? Or wait 2.5 months after the PPP loan shows up in my new biz bank account? Or wait 24 weeks after the PPP shows up in my new biz bank account?
Thanks for your help,
Jake
Yes, I think you got too much money. And you’ll lose forgiveness to the extent of the excess.
You can use either and you should use the 24-months probably since you’ll get more forgiveness and easier forgiveness. You also want to wait for Rubio’s bill since maybe more expenses will be forgivable.
Also, the owner compensation replacement will be based on and limited by your 2019 compensation.
That should be fine according to the current loan forgiveness application instructions.
The number of owner compensation payments probably doesn’t matter. But as noted, your owner compensation payroll gets limited by your 2019 Schedule C profit.
You probably want to read the loan forgiveness application instructions. They make it pretty easy… again though you’re currently thinking you can use all for owner payment and you can’t.
You’d want to ask your state unemployment office this question.
I’ve owned coffee houses for 30 years. I opened a new one December 1st, 2019 with 15 employees. Prior to opening day I had one manager for 3/4 of the year helping me put this new half million dollar coffee house together. He was the only person on payroll but he was on payroll 3/4 of the year. Once Covid hit we were operating very well with our full staff of 15. Finally to the point of breaking even and then suddenly our sales dropped 90%. We immediately applied for PPP knowing the money would run out. Because we couldn’t talk with anybody and the application was Flawed, it did not account for a business that had just opened in the last month of 2019, it averaged our payroll for the whole year of 2019. We ended up with a PPP loan of only $10,000 when 2 1/2 times our actual payroll since December 1 was nearly $50,000. The big banks ignored us and even said We didn’t qualify at first. When we finally, after many many weeks offered a PPP loan of 10,000 we figured we had better accept it or we may end up with nothing Since the money was running out. So we did. We are still open and barely hanging on. Wells Fargo came back and offered us 33,000 but it was too late, we already took the 10k the answer we got and continue to get is “one and done”. We have been trying unsuccessfully to get the remaining 40,000 ever since. Should Rubios Bill give us new hope? Is there any other way to correct this error that you are aware of?
Rubio’s bill may help you in two ways. First, you should be able to get a second draw loan. That’ll be HUGE.
And then the other thing is, you may be able to a “PPP loan amount increase”… the proposed statute (so the proposed law) talks about borrowers being able to bump their earlier PPP loan amount if the regulations changed after they got their original loan. We’ll want to see how the SBA fleshes that out, but fingers crossed they might (again) write a pretty small business friendly rule where a situation like your first loan error gets fixed.
Continued:
And by the way that payroll did not even include self-pay because I was not yet taking a paycheck.
Also I rushed to apply for an EIDL loan as well on that very first weekend that it was available. We ended up getting 18,000 and that has helped us to stay in business but from what I understand, The first 10,000 of the PPP loan will not be forgiven because I got the quick 10,000 from the EIDL loan. So in essence we didn’t get a PPP at all.
The self-pay thing is tricky. But Rubio’s bill also provides a way to deal with that somewhat. The usual rule for owner compensation replacement is, look at 2019. But the Rubio bill includes a way for new businesses to not get limited by 2019.
Quoting you from above
“The simplest situation occurs when a firm’s gross receipts during the a quarter of 2020 shrink by 25 percent or more as compared to the same quarter’s gross receipts during 2019.”
The typo in your explanation, “during ‘the a’ quarter”, confuses me. Also, which quarter(s) do you use to compare, a single quarter, every quarter?
Sorry. My rush to write meant my editing wasn’t good.
One compares the same quarter: Q1 from 2020 to Q1 from 2019, etc.
Hi
I thought it was 25% or more not 50% or more decrease in gross receipts in the compared quarters.
“The simplest situation occurs when a firm’s gross receipts during the a quarter of 2020 shrink by 25 percent or more as compared to the same quarter’s gross receipts during 2019.”
Please advise.
Thanks
It is 25 percent… or more. Sorry for not being clearer.
We are a mid size company that took a large PPP the first time around. Since we are in the restaurant space and some of our locations have not reopened we did not use all the PPP even after electing 24 week forgiveness period. We would prefer to use what is left before applying for a second PPP, which would require them extending the PPP forgiveness period beyond 24 weeks. My questions is are we still eligible for a second PPP even though we have left over PPP? What would be the max loan we would be eligible for if we took $9MM the first time?
I think you might be able to get $2,000,000. I.e., that’s the max for a second draw loan.. And I don’t see you being close to the $10,000,000 max the first time around limits you this time.
Two cautions though. First, this thing is a beast. More than 5,000 pages. So you’ll want your banker or accountant to read through and see if you spot a limit I missed.
Second, the rules work differently this time for aggregating businesses that operate in multiple locations… so you’d want to see if those impact you guys.
A final thought: I would think this money goes really fast. So I’m not sure it’ll be around when your $9M runs out.
To obtain forgiveness for the second draw PPP loan, will you be required to have the same number of employees (or FTEs) at the time your apply for forgiveness as you did pre-COVID? In my case, on February 15, 2020, I had 51 employees. At this time I have 40 employees. Because my revenues are down 30%, I have no immediate plans to hire more employees. Assuming I meet all the other criteria, can I qualify for 100% forgiveness of a round 2 loan without bringing back employees?
The FTE adjustments work the same way. But I think you’ll find that given the initial draw and second draw PPP loans give you basically 10 weeks of payroll and then roughly a six month window within which to spend the money, you should still get full forgiveness in MANY case. This suggestion: Work out the forgiveness for the initial draw to see what impact the FTE has. I bet you may find you “lose” like HALF if you forgiveness… but because you start with TWICE the forgivable spending that you still end up okay.
For PPP2 does gross revenue include the original ppp loan?
No.
I didn’t see the exclusion for “North American Industry Classification System code that beginning with 52, the prefix for finance and insurance sector” in the final text – did that get dropped or did I just miss?
No, I missed that. Now fixed. Thank you.
HI, is the statue for the second round ppp still S.4321? Aslo is the second round PPP application available yet?
Hi Stephen-
Three questions about the definition of “quarter” as it relates to the 25% reduction in sales.
1. I did not see any mention in the Relief Act’s text if the “quarter” has to be the standard calendar year quarters (Jan-Mar, Apr-June, Jul-Sept, Oct-Dec) or if you can select your own 12 week quarters as long as it matches up with the same 12 week quarter in the previous year. Ie. 2/3/20 -4/26/20 & 2/3/19-4/26/19. Are you allowed to select any 12 week period to define your “quarter?” If we can only use calendar year quarters, we do not qualify for the 25% sales decline, however if we can select our own 12 week quarters, we do.
2. Our accounting year is based on 13 4-week periods. This means Q1, Q2, and Q3 are 12-week quarters and Q4 is a 16 week quarter. Am I correct in thinking we can use these 12-week periods (Q1, Q2, Q3) and 16-week period (Q4) as our quarters for proof of 25% sales decline?
3. We opened our business 1 week before the quarter ended. Would we use the next quarter as our first quarter of business to determine the 25% sale decline? It doesn’t make sense if you had to base the entire quarter of sales on 1 week of business. If you adhered to this, it would be impossible to qualify for the sales decline test.
Thank you
Brad
Re: Accounting method for gross receipts – When/where/how will we find out if SBA will allow either method to show the necessary reduction? And do you think there is a good chance SBA will allow either accounting method? Thanks so much for the article. Very helpful.
If the SBA gives borrowers the same “accounting method” flexibility for revenues as they did for expenses, they will let borrowers know in an interim final rule. (They have published a whole series of those so far.)
As far as whether or not they do this, I don’t know. My best (though very unsatisfying) answer is, I think they should have borrowers use the same method as shows up on the tax return.. but I wouldn’t be surprised if they give people more flexibility than that.
Hi Stephen,
I have been following you on Twitter, thank you for what you have been doing. Here is my situation and questions:
FACTS:
– I purchased the assets of an existing business on Sept 21 2020, I will call the sellers the “old” company and my entity the “new” company.
– The old company applied for and received a PPP loan before the August 2020 deadline for about 380K. By the time the sale happened, they had used 280K, and they paid back the unused 100K in October. They applied for forgiveness in November and are awaiting answers.
– I officially applied for a tax ID and created my legal entity (the new company) in June 2020, for various reasons including the fact that I needed an entity to obtain a 7(a) loan to purchase the business. The new company did not begin operations until Sept 21 2020 when the sale of the assets occurred.
QUESTIONS:
– According to your example above, where “Stockly Donelson, a new law firm, started operations on March 1, 2020”, I would think I would be eligible for a second draw loan, but I did not see that language about new entity second draw loans in the text of the bill. Can you tell me what page that is on, where I can find that?
– Does it matter that I purchased the assets of the existing business, or that they applied for, received, and paid back part of, a first draw loan before the sale?
– If I am eligible, when calculating average monthly payroll to determine the maximum amount of the loan, can I use only the dates when we were in operation (Sept 21 and forward) or do I have to go back to June when the entity was created (when I had no payroll for 3.5 months)?
Thanks in advance, Stephen, greatly appreciate your help.
Would the gross receipt for determining PPP2 eligibility include the first PPP loan and/or sick/family leave tax credit? Thanks!
No.
This really is a terrible solution with the revenue loss required as an all or nothing. My business went through an expansion Q4 2019 and took on a second location’s rent. Revenue was increasing steadily through Q1 2020. Comparing any quarter to 2019 doesn’t show much of the revenue drop, but of course my expenses have increased dramatically. If I compare one month 3/2020 to any month after I’m at > 25% loss. I guess that I’m out of luck. What about that poor business owner that has a 24% drop? Sorry, nothing for you.
Hi Al… and first, thanks for sharing… and second, yes, I agree with you that the PPP doesn’t really effectively address Covid-19 damage caused in a situation like yours. Truly very sorry for you and all the folks in similar situations.
Can any three consecutive months constitute a quarter?
I was down 20% in the true “2nd quarter” but was down 30% in March, April, May.
I don’t think so, but see my comments that respond to Jim’s query.
I’m confused by the basis adjustment for S Corporation shareholders and partner. The business is allowed the deduction for the allowed expenses used with PPP1 funds AND the loans forgiven are added to basis? Do I have that right?
Yes.
So this example. I think if you get $100,000 of forgiveness, you add $100K to the basis of the partners and S corporation shareholders… and then when you spend the $100K, you subtract $100K from the basis.
BTW, Tony Nitti has a piece in Forbes today (?) that says, “not so fast.. we may need to wait for the basis increase from the forgiveness until forgiveness is official.” That’s a risk, obviously. But think IRS will apply the logic of Rev Ruling 2020-27 and say that once the forgiveness is certainty, you do the accounting to reflect that.
Can the qualification for revenue reduction be any 3 consecutive months? If I use March, April, May I have a 42% reduction but if I use 2nd quarter of April, May, June it’s only 22%.
The statute says “quarters.” So I think that’s different than three consecutive months. E.g., Jan, Feb, Mar obviously works… but Feb, Mar, Apr probably doesn’t.
I would keep your eyes open, though, for the SBA rules that come out on this. They’ve sort of had a history of making favorable tweaks to the law. You may luck out.
P.S. I think for a fiscal year taxpayer, the quarters will map to the fiscal year. Though I don’t think we know that for certain yet. E.g., if you use a fiscal year that ends February 28, your first fiscal quarter runs Mar, Apr and May.
I’m glad to see somebody else ask the question. If enough of us do, maybe it will become “a thing”. Interesting that our chosen accounting year method would have changed it. I’m holding out hope.
Hi I am a hair stylist that owns a booth rental hair salon. All of my girls are independent contractors they get 1099 forms. I file as an scorp with 0 employees. I applied for the PPP through three different banks and was denied every time because of the way I file my taxes. Do you think it will be the same this time? I was out of work for six weeks and took a loss on the booth rent from the girls. Any suggestions?
If you’re an S corporation, you need payroll in order to get a PPP loan. the PPP loan formula looks at your average monthly payroll and multiples that value by 2.5 to get the loan you qualify for.
Example: You have $10,000 a month of payroll? You get 2.5 times $10,000 or $25,000.
With zero payroll, you get 2.5 times zero. Sorry.
Hi Stephen,
I have been operating a single member LLC during 2019, but incorporated a new LLC in October 2019 and also elected as an S-Corp during October 2019 for the new LLC. I stopped doing business in the old LLC at end of 2019 and I started doing business in the new LLC/S-Corp in January 2020. I received a PPP loan the first time around and I may be eligible based on the reduction of gross receipts during Q2-20 to apply for the second draw PPP loan. I am the only employee owner of the S-Corp. Two questions:
1. Can I get forgiveness for the first PPP loan given that I don’t have any income in the S-Corp for 2019;
2. Are the forgiveness rules different under the second draw PPP loan scenario which may or may not allow me to get forgiveness for the first and/or second draw loan?
Thanks much,
Geran
Lots of detail in your question and so you want to check with your accountant or the banker but that qualification made…
question 1 answer: You get forgiveness based on spending on eligible-for-forgiveness items… so you can get PPP loan cancelled without revenues…
question 1 answer: second draw loan rules basically the same. It’s basically just a redo of the first loan…
I own PT clinics. I added fifth clinic in July of 2019. When comparing first and second quarters for top line revenue, can I subtract the new clinics revenue in 2o2o(1st and 2nd quarter). If so, I aam to show 25% reduction in revenue. Also, due to the nature of medical billing, often times we wait up to six months for settlements from insurance companies. Could this “old” money be suctracted from current year revenue?
TIA
We don’t know the details of the accounting method(s) the SBA will require. But I would think you use either cash or accrual method, but consistently. And I would think you probably don’t adjust. I.e., if you operated 5 PT clinics in 2020 and only 4 PT clinics in 2019 and that extra clinic keeps you from suffering a 25 percent drop? I will guess that precludes you from getting a second draw loan.
Must you use your first draw lender for your second drawn loan application or can you use a different lender?
I don’t know. I wouldn’t think that’s a requirement. Seems like it’d be easier though…
Thank you so much for this post! As a sole proprietor, can I demonstrate 25 percent revenue reduction including my schedule c expenses, or only billed receipts?
The 25 percent reduction means a reduction in revenues. So your billed receipts or collected receipts.
Hi Stephen,
I see that you replied to others since my post. Perhaps I asked the wrong questions or it was too detailed. Feel free to email me if that is the case, or if you just happened to be still researching no worries. Thanks for all the help you give.
Hi Joe, I’ll look back for your original question. But I know that sometimes folks ask for pretty detailed, specific advice. And just for liability reasons, I’m not comfortable commenting in those situations. If someone has a lot of details they want help with, probably best to find a local accountant and get her or his help.
We lost more than 25% quarter-over-quarter in Q2, but that is also the quarter when we received our first PPP loan. If the assumption is that it will be forgiven, does that mean we cannot actually declare a year-over-year loss? (The PPP actually put us back into the black, obviously, before we started using it for payroll etc. over the next few months).
Or, is the PPP we received considered a loan until forgiven, so technically it created a liability and we still show a loss for the quarter (would be about 50%).
You qualify. The PPP money doesn’t count as income.
So I understand we don’t know which accounting method will be used yet for decrease in income. The other question I have is when they are referring to “gross receipts” does that mean actual payments that were made during a period and deposited? Or just invoiced sales? So say someone was invoiced in 2QT put you didn’t receive the payment until the 4th QT.
I think your question is basically “cash basis accounting” or “accrual basis accounting.”
The two obvious answers are: One, whatever the firm’s tax return accounting method is… and, two, whichever method you want but consistently applied.
BTW, the SBA has been very borrower-friendly in past PPP rules. So I would not be surprised if they say, “hey you can use either cash of accrual accounting… just be consistent.”
Thanks for the blog, very helpful! A few (hopefully) quick questions:
1. We had around 400 employees in Feb. 2020 but now have a little under 300; do we qualify for the second draw? When is the employee measurement period?
2. We received over $2 Million with the “first” draw, are we qualified to now receive up to an additional $2 Million as long as we stay under $10M total, or are we not qualified to get anything additional at this time?
3. If we are disqualified because of number 1 and/or 2 above, we have multiple locations under separate entities, could we start with new applications for them but only do “draw” 2?
4. Any idea as to when they will start to take draw 2 applications?
Thanks,
I think you probably will get chance to do a second draw. and fyi I think they’ll need to look at employees you have at time of second draw PPP loan application.
Regarding starting loans, I assume SBA needs to have a second draw loan application with instructions… and then that banks need a little bit of time to restart. Timing, I would hope, looks like last time?
I have a fast food restaurant business with 13 employees. My second quarter of 2020 compared to the second quarter of 2019 has dropped in revenue by 20%. Do I qualify for the second round of PPP loans or do I need anything else to qualify.
You need a 25 drop to get a second draw loan, so right now, you don’t qualify.
Hello, I purchased an existing business on October 24, 2019. I was able to get PPP money in the first round but I am struggling with the rules for the second round with my specific situation. Based on your examples how would I calculate the 25% decrease if I did not have a full quarter of revenue in 2019?
Thanks,
Jack
I don’t know answer to that question. It’s maybe really more like a situation described in Example 3 above… or like the situation described in the paragraph that follows that example.
I’d say carefully read the new PPP loan applications and try? Good luck!
I think the metric of proving 25% drop in revenues is not fair for restaurants. Many restaurants were forced to switch to deliveries of food on platforms like Grubhub when dining rooms were closed… the cost of getting the same top line sales was higher after fees to the platforms, so $100 sale is like getting $70. So the quality of the sale dollar earned is less.
Restaurants had to sell much more to try and keep up with historic profits. Just because revenues were up or similar in 2020 to 2019 doesn’t mean they didn’t have a drop in income…
My point is, the sales restaurants report on their sales tax return and pay sales tax on isn’t the number they should have to use to show their revenue decline, it is not a fair reflection of what happened to the business due to covid. They should be allowed to deduct the cost of buying that revenue, the cost of the delivery platforms like Grubhub.
Tajinder, I think you make an important point. Thanks for sharing. Good luck with what the future holds for your business.
I have two separate company under my ss# I received a ppp loan for one of them but could get one for the second, only allowed one load per ss#. If I apply for a second load can I it be for the company that I didn’t get the load for or does it have to be for the one I got the ppp load on?
I wonder if you can get an EIN for the second company… and then get a first draw loan for that? And then maybe a second draw loan for each, if you qualify… Just an idea…
Stephen, great article, super helpful!
I’ve got an LLC created in Q4 2019 and $0 revenue that quarter.
Revenue #s for 2020:
Q1 2020 – $47k
Q2 2020 – $28k
Q3 2020 – $32k
Q4 2020 – $0
Am I correct that the > 25% drop from Q1 to Q2 makes us eligible?
I think so. I think your business basically started in Q1 of 2020. And if you were “rolling” by 2/15/2020, you need a roughly $12K drop from Q1 to Q2. You have a roughly $19K drop. More than enough to qualify.
The other thing is, what amount will you qualify for… I.e., you’re eligible but what amount does the loan formula calculate?
Stephen, thanks for the reply!
On the formula question, I suspect my example is as basic it gets. My wife and I are the two partners on this LLC with a 51/49% ownership split.
Q1 profit = $47k: or nearly $16k/month, or nearly $8k per person per month,
Doesn’t that put us each at roughly $20k each in the formula?
$8k per month x 2.5 months = $20k
If I’ve read correctly, isn’t $20,833 the max PPP loan payment for self employed?
Huge thanks!
The formula, in general, looks at 2019 compensation. But if you guys (both partners) earned $100K in 2019, that’s the amount needed to qualify for $20833 for EACH partner.
I see example 6 speaks about businesses opened after February 2020. My restaurant opened in mid 2020 and I didn’t apply for round one PPP. Can I get a PPP now using 2 1/2 times my average monthly payroll during the July to December 2020 timeframe?
I don’t think so. But check the application instructions. The thing is? A requirement for a PPP loan was to be in business on 2/15/2020.
I left $16 in the first ppp—can I go for ppp2 if everything else falls in line
I have a restaurant that only started generating sales/revenue in June 2019 but there is some payroll run from January 2019 til May 2019 but very little. I am hoping to be able to use only June through December to figure my average monthly payroll then divide by 7 months…this would give me the highest loan amount. I saw this calculation was posted on some other site for new businesses but it may have said all months where payroll has been run. I am hoping I do not have to use all 12 months..it will give me a much lower loan amount. For PPP1 we were able to use the average of Jan and Feb 2020 but I do not see any of that listed anywhere for PPP2. Can you help? Thank you!
You want to try and use the seasonal employer formula or the new employer formula. One of those is what will probably get you the bigger loan amount. See discussion above for example 5 and example 6.
I left $16 in ppp1–can I still apply for ppp2 in everything else falls in line for qualifying
I’m not sure I understand your question. But if you’re saying you still owe $16 on your first PPP loan? I don’t think that’ll matter…
Stephen,
I really appreciate your guidance regarding the PPP2 loan. If you are able to, I would be so thankful for any knowledge and guidance that you might have about my wife and I’s specific situation.
My wife started a first time self-employment contract on 2/1/20 with monthly invoices up until they terminated her contract at the end of August 2020. She qualified for PPP1 as not being in business in 2019 but yes in business by 2/15/20 therefore using the equation of Jan and Feb 2020 gross divided by 2 multiplied by 2.5.
From my reading of the PPP2 bill language, I believe she will qualify for that as well since she has no gross self-employment income in Q4 of 2020 due to her self-employment contract being terminated at the end of Aug 2020. In comparing her Q1 2020 to Q4 2020, she hits the requirement of minimum 25% reduction in gross income.
I think that the main question I have is how to correctly calculate the loan amount that she would qualify for. On page 2072 of the new bill, it looks like she would fall under the category of “new entity” since my wife’s self-employment “did not exist during the 1-year period preceding February 15, 2020.” I have the “sum of the total monthly payments” for her and then in section BB under new entities it states to use the sum of the payments divided by “the number of months in which those payroll costs were paid or incurred” multiplied by 2.5. She only had income/invoices from her self-employment from Feb 2020 to Aug 2020 which would amount to 7 months.
Would the loan amount that she would qualify for be her gross self-employment income (Feb to Aug 2020) divided by 7 multiplied by 2.5 or would we need to divide her gross by 12 months regardless of the limited months that she had this income?
Thank you Stephen for all your help!
Hi,
I’m a sole proprietor one-woman shop and my yearly income is usually fairly consistent but definitely goes up and down and quarterly performance isn’t consistent. My customers have definitely changed their behavior due to covid; my overall revenue has gone down around 15-20% year over year. But the only quarters that meet the 25% requirement for me are Q1 2019 vs Q1 2020.
I usually bill clients at the end of the month, and so it’s hard to draw a direct line between COVID and the drop in payments I received in Q1. (Although it is possible I guess that news reports in February may have influenced some clients’ spending.) Can/Should I still apply for a second draw? I would be using it entirely for 2.5 months of ‘payroll’ to myself.
Thank you!
I think you do qualify if your Q1 drops by 25% or more. Sounds like it did.
Great read. Thanks for putting this together. Follow-up question: I work as a independent contractor. YoY, I did not incur a 25% loss in quarters, 1, 2, & 3 but did incur a greater than 25% loss in 4th quarter of 202o compared to my 4th quarter 2019. Would this qualify? There’s seems to be some ambiguity as to whether the 4th quarter counts. ~Thanks!
You should qualify. I think the confusion stems from the fact that they wouldn’t let you compare a partial 2020 Q4 to a full 2019 Q4…