One of the most crucial aspects of the CARES Act, passed almost a year ago, was the Payroll Protection Program. The Paycheck Protection Program offered loans to financially encourage employers to keep their employees on the payroll, despite the downward spiral of the economy.
Nearly a year later, the Paycheck Protection Program has been renewed and revamped by the Biden administration. There are new criteria for attaining these loans and an expansion of the expenses that these loans can be used to cover.
The Biden administration is dedicated to making PPP loans more inclusive and effective for the smallest of businesses. Here are 6 key takeaways, if you are considering applying for the second round of PPP funding.
Bigger Breaks for Smaller Businesses
The second round is geared towards the smallest of businesses that were left behind larger businesses in the first round of PPP loans. For the first two weeks of the program, only the smallest of businesses, those with 20 employees or less can apply. This gives priority to the segment of small businesses that are struggling to stay solvent amidst the ongoing pandemic.
The window for small businesses and nonprofits with 20 employees or less, opens on February 24, 2021 at 9AM EST and closes on March 9, 2021 at 5PM EST.
There is a new criteria that determines whether businesses qualify for PPP loans. Employers must have 300 or less employees to qualify for the second round of PPP loans. If these employers have received and either have already or will soon complete their first round of funding can apply.
The main eligibility criteria is based on the businesses’ gross income. They must be able to demonstrate a 25% dip in their gross income from comparable quarters of 2019 or 2020. Employers can prove this easily enough by submitting quarterly or monthly bank statements.
Inclusivity for Self-employed Individuals
One of the harshest criticisms of the first round of PPP loans was that self-employed individuals were greatly left out of the equation and unable to get the financial help they needed.
In the first round of PPP funding, lenders calculated loans for self-employed individuals using the Schedule C attached to their Form 1040, where many deductions can be found. This led to smaller loans and unsatisfied self-employed workers.
To make PPP loans more inclusive for the self-employed, the calculation method has been changed. The loans will now be calculated on gross income rather than net profit, which paints a more accurate picture of an individual’s financial situation.
The Maximum Loan Amount is $2 Million
Small businesses can apply for a maximum loan amount of $2 million, as opposed to the higher $10 million loans we saw in the first round of funding. Employers should request 2.5 times the average cost of their monthly payroll.
Restaurants and Hotels get a Boost
Restaurants, hotels, and the hospitality industry in general has been hit hard by the pandemic. These businesses automatically get an extra boost of funding. Restaurants and hotels are able to request loans in the amount of 3.5 times their monthly payroll expenses.
Expenses that PPP Loans Cover
There is a much wider range of how employers can use their second round of PPP funding. They must use 60% of the funding on payroll expenses. However, as these loans are created to be a lifeline to keep businesses open, they can spend the other 40% on mortgage and rent payments, utilities, and additional business expenses.
The money can also be used to purchase PPE (Personal Protective Equipment) and take measures to ensure they are meeting the government’s COVID-19 requirements.
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