What you need to know when applying for a second PPP loan

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic has tested her ability to adapt in flight amid declining revenues.

Since March last year, the company has transitioned from catering weddings and corporate events to providing first aid meals and home delivery services.

Herrera also opened a new company, Boxperience, a service that provides gourmet snack boxes.

Creativity aside, its businesses continue to suffer from the pandemic. Herrera fired about 80% of its workforce last March as customers canceled events and stay-at-home orders took effect.

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

Herrera, like many other small business owners, is counting on a second loan through PPP to help her through the spring.

“I hope this takes us to May,” she said, “and that in Chicago, with the vaccines, everything will open up again and we’ll 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 as part of the Covid relief effort that went into effect in late 2020.

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

Accommodation and food services businesses – such as Herrera – can borrow up to 3.5 times their average monthly wage costs for 2019 or 2020. Those companies also have a ceiling of $ 2 million.

Whether 3 ½ months of payroll will be enough to get food and hospitality businesses through the rollout of the vaccine is in the air. But companies in desperate need are likely to be screaming to apply.

“The appetite may be a little stronger this time, now that many entrepreneurs know what to expect,” said Nicole Davis, CPA and founder of Butler-Davis in Conyers, Georgia.

“There are more hurdles to getting the loan this time.”

The SBA established three basic standards that second-borrowers must meet in order to request a loan waiver.

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

Finally, they must demonstrate that they had at least 25% less gross income in a quarter between 2019 and 2020.

What small businesses may not know is that banks can have their own expectations when it comes time to request more money.

For example, banks can prove that your company has been hit.

“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, prepare your quarterly income statement compared to the same period last year,” he said.

Furthermore, some lenders are also urging their clients to forgive their first round of PPS loans before applying for a second round of funding – even though the SBA doesn’t require it, tax professionals say.

While PPP loans can generally be forgiven if borrowers spend at least 60% of the funding on wage costs, tax professionals have so far delayed seeking forgiveness.

Many of them want to see whether the same customers can benefit from new facilities in the end-of-year Covid reception act, including the expansion of staff retention credit.

More from Smart Tax Planning:
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These characteristics can influence the picture of tax planning for small businesses.

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

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

Before small businesses approach the bank for a second round of funding, they should make sure they are ready to provide documentation, including their income statement and salary details.

They should also engage a tax professional to walk them through the process, ensure they qualify for more funding, and determine if they can take advantage of significant employer tax credits.

Both tax professionals and small businesses have also spoken positively about their experience working with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, went from hoping to hit $ 1 million in 2020 sales to outsourcing his box truck that summer to make ends meet.

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

His CPA helped him prepare his payroll documents, and she is likely to be instrumental in securing a second round of PPP funding.

“Right now, I can’t be the only business owner who looks at it like that,” said Muzzatti.

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