January 13, 2021
By Jeff Drew
The application window for Paycheck Protection Program (PPP) forgivable loans will open Friday for lenders with $1 billion or less in assets, the US Small Business Administration and Treasury announced.
The opening, which will take place at 9 a.m. ET, applies for both first- and second-draw PPP loans.
The program will begin accepting applications for first- and second-draw loans from large lenders on Tuesday, Jan. 19.
PPP reopened Monday initially for community financial institutions (CFIs) to make loans to first-time PPP borrowers. CFIs were allowed to make second-draw loans to previous PPP recipients starting Wednesday.
CFIs typically work with underserved small businesses. SBA and Treasury granted the initial early access to PPP so these small businesses, which include many minority- and women-owned concerns, could get first crack at accessing the $284.5 billion in PPP funding approved in the part of the $900 billion COVID-19 relief bill that was signed into law on Dec. 27.
The AICPA issued a news release earlier Wednesday encouraging accounting firms to aggressively advance PPP applications for small businesses in anticipation of the SBA beginning to accept applications from all lenders.
“We believe the full program needs to go live as soon as possible and we fully support the Treasury Department and SBA reopening the program for all lenders,” said AICPA President and CEO Barry Melancon, CPA, CGMA, in the news release. “What we’ve been telling CPA firms is be prepared and get to work. All indications, based on input from the Treasury and SBA, is there will be enough funding to meet all of the ‘first draw’ and ‘second draw’ PPP applications, so firms can help alleviate concerns their clients may have.”
The AICPA has been advising firms to collect key information from their clients such as average monthly payroll amounts, quarterly revenue for second-draw borrowers, and other required documentation to speed the process.
AICPA executives will discuss the latest PPP developments and their implications for CPAs and their small business clients at this week’s AICPA Town Hall at 3 p.m. ET on Thursday.
PPP funding, forms and guidance
Accountants played a key role in helping small businesses secure needed funding during the first iteration of PPP, which provided $525 billion in forgivable loans over five months before it stopped accepting applications in August. The $284.5 billion in fresh PPP funding includes set-asides of $35 billion for first-time loans and $15 billion set aside for CFIs.
The SBA and Treasury issued guidance Jan. 6 for the new PPP, which shares many of the same rules as the old PPP but also has some significant differences. Application forms for first- and second-draw loans were released a couple of days later.
Quick overview of the new PPP
In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the year prior to the loan. PPP borrowers with North American Industry Classification System (NAICS) codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.
The loans are capped at $10 million for first-time borrowers and $2 million for second-time PPP borrowers.
PPP first- and second-draw loans may qualify for forgiveness if the funds are used on the following eligible costs: payroll, rent, covered mortgage interest, and utilities, covered worker protection and facility modification expenditures, covered property damage costs, covered payments to suppliers and payments for business software or cloud computing services that facilitate business operations, product or service delivery, and a number of back-office functions, including accounting.
To be eligible for full loan forgiveness, PPP borrowers must spend no less than 60% of the funds on payroll over a covered period of their choice between eight and 24 weeks.
Borrowers are eligible for a second-draw PPP loan of up to $2 million, provided they have:
- 300 or fewer employees.
- Used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The IFR also clarifies that the borrower must have spent the full amount of the first PPP loan on eligible expenses.
- Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or, in a provision added in the IFR, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
First time PPP loans are available to borrowers that were in operations on Feb. 15, 2020 and are from one of the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations with NAICS codes starting with 72 that have fewer than 500 employees per physical location.
- Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15. 2020. Sports leagues are not eligible.
- News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business or not-for-profit public broadcasting entities with a trade or business under NAICS code 511110 or 5151. The size limit for this category is no more than 500 employees per location.
AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.
The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.
For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.
— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.