The New & Improved Paycheck Protection Program: How to Determine Eligibility and Apply — Nancy McClelland, CPA
Summary
These are slides for a webinar titled “The New & Improved Paycheck Protection Program: How to Determine Eligibility and Apply,” presented by Nancy McClelland, CPA, The Dancing Accountant. The slides describe the program as a forgivable loan with no personal guarantees or collateral, intended primarily to cover payroll (at least 60%), applied for through a bank or other financial institution rather than directly through the SBA. The slides state that the initial round began 4/3/20 and ran out of funding in 13 days, that the program was replenished 4/26/20, and that a new round opened 1/11/21 with a deadline to apply of 3/31/21 or until funding runs out. Eligibility listed includes being in operation on February 15, 2020. The slides end by pointing to an SBA webinar on Tuesday, February 23, 2021.
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“The New & Improved Paycheck Protection Program: How to Determine Eligibility and Apply — Nancy McClelland, CPA.”
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THE NEW & IMPROVED
PAYCHECK PROTECTION
PROGRAM: HOW TO
DETERMINE ELIGIBILITY
AND APPLY
WITH NANCY MCCLELLAND, CPA
THE DANCING ACCOUNTANT
THE DANCING ACCOUNTANT
Celebrating 20 years of small business accounting in
Logan Square
CPA with a Masters in Accounting & Financial
Management
Certified Quickbooks ProAdvisor
Award-winning blog at www.thedancingaccountant.com
And yes … a professional dancer
This webinar and slide deck are intended for educational purposes and should not be
taken as legal or tax advice. You should consult with your financial professionals about
your unique situation before acting on anything presented. The Dancing Accountant is
providing educational content to help small business owners become more informed,
but we cannot give legal advice; Nancy McClelland LLC DBA The Dancing Accountant
and its staff cannot be held liable for any use or misuse of this content.
Paycheck Protection Program Summary
Current Program Overview
Eligibility
AGENDA How to Apply
Where to Apply
Forgiveness Basics
Resources & Questions
• Forgivable loan – essentially a tax-free grant
• No personal guarantees or collateral are required
PAYCHECK • Intended to primarily cover payroll (at least 60%) but also some
overhead costs
PROTECTION • Apply through bank or other financial institution
PROGRAM: THE • Do not apply directly through the SBA
BASICS • Does not need to be “your” bank
• Many options including community banks, FinTech lenders &
third-parties – ask your accountant or payroll provider
• Initial round began 4/3/20; ran out of funding in 13 days
• Businesses with more resources (in-house CPAs, existing
relationships with bankers) initially received most of the money
PAYCHECK • Program was replenished 4/26/20 and ran through 8/8/20
PROTECTION • Missing or conflicting application and forgiveness guidance
PROGRAM: THE • Concern about significance of certification that "current
economic uncertainty makes this loan request necessary" for the
CHALLENGES business to keep operating
• Fear of being left with a loan that cannot be repaid
• Series of guidance releases from the SBA & IRS
• New legislation from Congress in June & December 2020
• Rules are much clearer
PAYCHECK • Program much more beneficial for small businesses
PROTECTION • New round of PPP opened 1/11/21 - more deliberate, targeted
approach for both lenders and recipients
PROGRAM: THE • Deadline to apply is 3/31/21 or until funding runs out if sooner
CURRENT STATUS • Appears that the program is sufficiently funded through 3/31
• Not too late to apply for PPP1
• Process is taking approximately 1-4 weeks from application to
funding
FINANCIAL RELIEF FOR SMALL BUSINESSES: OPTIONS
1. If you have not applied for PPP1, this should be first on the list
2. If you did apply for PPP1, determine if your business qualifies for PPP2 and if so, apply
3. Look into the Employee Retention Credit (ERC, aka ERTC)
• It used to be prohibited to take both ERC and PPP, but the newest legislation changed all that
• Now, you can take both ERC and PPP, but not for the same “payroll dollars”; you can even go back and claim it
retroactively for 2020 on amended payroll tax returns
• The rules for retroactively claiming this for 2020 are different than the rules for 2021
• The interaction between these two programs is complex, so it’s best to work with a trusted advisor
4. Research state, local, and private grants for your specific location and industry, as well as grants from
big companies trying to position themselves as small-business-friendly
5. Consider other SBA Loan programs
6. Reach out to your local chamber of commerce and representative’s office for suggestions
This webinar will focus on the current round of PPP funding – for both PPP1 & PPP2 borrowers
CURRENT PROGRAM: ELIGIBILITY
• Must have been in operation on February 15, 2020 (special rules for seasonal
businesses)
• Must have payroll or self-employment income for partnerships/sole
proprietor – “payroll” means anything on which you paid SS/MC taxes
• Must certify the business needs the money: “the uncertainty of current
economic conditions makes necessary the loan request to support the ongoing
obligations”
• For PPP2 – Mut show 25% drop in revenue 2020 vs 2019, or in any one
quarter of 2020 vs. same quarter 2019
CURRENT PROGRAM: INELIGIBLE BORROWERS
• Not in operation on February 15, 2020
• Applicant’s business has permanently closed
• Owners in bankruptcy
• Illegal activities
• Household employers
• 20%+ owner currently incarcerated for a felony or ever convicted of fraud felony
• Delinquent or defaulted on an SBA loan
• Participant in Shuttered Venue Operator Grant program
• Foreign companies, SEC Filers, Lobbyists, etc.
• Under no circumstances may PPP funds be used to support non-U.S. workers or operations
CURRENT PROGRAM: AMOUNT OF LOAN
PPP1 - 2.5 months of 2019 or 2020 ”payroll” PPP2 – second draw is also 2.5 months of 2019 or past
12-mos “payroll” -- or 3.5 months IF business is in the
hospitality industry (NAICS 72)
KEY DIFFERENCES BETWEEN FIRST DRAW AND
SECOND DRAW PPP LOANS
FIRST DRAW SECOND DRAW
Eligibility – Maximum Number of
Up to 500 employees or alternative SBA size standard
Employees (subject to exceptions Up to 300 Employees
for number of employees based upon NAICS code
outlined below)
At least 25% reduction in revenue, calculated by
comparing the applicant’s quarterly gross receipts
for one quarter in 2020 with the applicant’s gross
Revenue Reduction Requirement None receipts for the corresponding quarter of 2019. If
the applicant was in operation in all four quarters
of 2019, a reduction in annual receipts of 25% or
greater in 2020 compared to 2019.
Maximum Loan Amount $10 Million $2 Million
Calculation of Loan Amount – Either (i) the 12-month period prior to when the
Either the 2019 or 2020 calendar year
Payroll Period(s) loan was made or (ii) the calendar year 2019
CURRENT PROGRAM: WHAT COUNTS AS PAYROLL
• “Payroll” for the purposes of the PPP includes anything on which you pay “Payroll Taxes” aka
“Social Security & Medicare Taxes” aka “Self-Employment Taxes”
• This means it may be different depending on the entity
• Gross wages/salary from W-2s (these count for all types of entities, whether paid to self or staff)
• Health/Dental/Vision Insurance, Life Insurance, Disability Insurance, Workers Comp paid by employer
• Retirement Contributions paid by employer
• State/local taxes on compensation (unemployment taxes paid by employer)
• Owner compensation replacement (Schedule C, Schedule F, or Partnership)
CURRENT PROGRAM: WHAT DOES NOT COUNT AS
PAYROLL
NOT INCLUDED:
• Federal payroll taxes
• Any annualized wage/salary compensation over $100k
(across all businesses in which they have ownership)
• Wages used for Employee Retention Credit (ERC)
• Distributions
• For more details, see the Clara CFO Group YouTube video –
https://www.youtube.com/watch?v=Hn6VHLGiKyA
HOW TO APPLY: REQUIREMENTS
FOR 1ST TIME BORROWERS
• Business established on or before February 15th,
2020
• Fewer than 500 employees
• If no employees, must have positive net income
(2019 or 2020)
• Remember: at least 60% of the PPP needs to be
spent on payroll costs
Certify that you have used or will use 100% of
the first draw PPP funds on eligible expenses on
or before expected date of the second draw loan
disbursement.
HOW TO APPLY:
REQUIREMENTS
FOR 2ND TIME No more than 300 employees
BORROWERS
Show a 25% reduction in year-over-year same
quarterly or annual revenue from 2019 -> 2020
HOW TO APPLY: DOCUMENTS NEEDED
ALL APPLICANTS:
• Front and back of Driver’s License
• Voided/Canceled Check or letter from bank showing
company name, bank routing & account numbers
• Bank Statement showing company name that includes
the date 2/15/20 (as proof of business existence)
• If you applied for PPP first-time around, SBA loan
number (this has been hard to obtain from some banks)
HOW TO APPLY: DOCUMENTS NEEDED
If PPP2, signed illustration of 25% decline in gross revenues
- QuickBooks Profit & Loss report comparing “Previous Year” by percentage is best, but any reasonable indication works
(e.g., spreadsheet with 2019 vs 2020 Form 1099 totals; tax returns; adding up bank statement income, etc.)
HOW TO APPLY: DOCUMENTS NEEDED
CORPORATION (S-Corp, C-Corp, Co-ops, i.e., entities filing IRS Form 1120 series)
or NON-PROFIT (entities filing IRS Form 990 series):
• IRS form 941 for all four quarters of 2019; annual Form 940
• If you offer health/vision/dental insurance or retirement, employer cost for 2019
• Some lenders require Articles of Incorporation/Bylaws/Operating Agreement
showing % of ownership
SOLE PROPRIETOR (Independent Contractors, Freelancers, Single-Member LLCs):
• 2019 Form Schedule C from Tax Return (Form 1040)
• If you have employees: IRS form 941 for all four quarters of 2019; annual form 940
• If you offer health/vision/dental insurance or retirement, employer cost for 2019
PARTNERSHIP (including Multi-Member LLCs; i.e., entities filing IRS Form 1065):
• 2019 Business Tax Return (Form 1065) including K-1s
• If you have employees, IRS form 941 for all four quarters of 2019; annual form 940
• If you offer health/vision/dental insurance or retirement, employer cost for 2019
https://www.biz2credit.com/blog/wp-content/uploads/2021/02/PPP-supporting-documents-guidebook.pdf
HOW TO APPLY: SBA APPLICATION
HOW TO APPLY: FILLING OUT THE FORM
• Most lenders will have you use their portal to apply – not the actual SBA form
• Entity checkboxes are confusing; recommend you select tax filing status
• You can find your NAICS Code on your most recent tax return, or look it up at
NAICS.com/search
HOW TO APPLY: FILLING OUT THE FORM
HOW TO APPLY: FILLING OUT THE FORM
• IRS issues EINs upon request for banking or payroll tax purposes
• If you’re a sole proprietor without an EIN: Business TIN is your social security
number
• Business TIN is different for each business you own; each business files its
own application (limits of $100k and 2.5 months of 2019 owner compensation
across all companies)
HOW TO APPLY: FILLING OUT THE FORM
• Average monthly payroll determines the final loan amount
• It should include staff and owner compensation combined
• Number of employees is just a head-count (full-time + part-time)
• Always check “Payroll Costs” as one of the purposes of the loan – the rest do
not matter and are just for informational data
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY PAYROLL:
SOLE PROPRIETOR, INDEPENDENT CONTRACTOR,
FREELANCER, SINGLE-MEMBER LLC
1. Refer to Schedule C on 2019 IRS 1040 Tax Return
• Line 31 is net income
• You may use either 2019 or 2020 net income
2. If you have no employees, then:
a. Divide this by 12
b. Multiply by 2.5 (3.5 if NAICS 72: e.g., restaurant)
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY PAYROLL: SOLE PROPRIETOR, INDEPENDENT CONTRACTOR,
FREELANCER, SINGLE-MEMBER LLC
Example:
$60,000 / 12 months = $5,000 average payroll per month
$5,000 x 2.5 = $12,500
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY PAYROLL:
PARTNERSHIPS
1. Refer to Form 1065
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY
PAYROLL: PARTNERSHIPS
2. Refer to Schedule K on IRS 1065 Tax
Return
• Line 14a is total net earnings (loss) from
self-employment for all partners
combined
• If no one earned over $100k, you can
just use this as your partner payroll total
• You may use either 2019 or 2020 net $60,000
income
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY
PAYROLL: PARTNERSHIPS
3. Refer to Schedule K1 on IRS 1065
Tax Return
• If certain partners earned $100k or
more, you need instead to add up
Line 14a on each of the individual K-
1 forms from the return
• Line 14a is self-employment
earnings (loss)
• You may use either 2019 or 2020 net
income
A $20,000
HOW TO APPLY: FILLING OUT THE FORM
CALCULATING AVERAGE MONTHLY PAYROLL: PARTNERSHIPS
Example:
$60,000 / 12 months = $5,000 average payroll per month
$5,000 x 2.5 = $12,500
HOW TO APPLY: FILLING
OUT THE FORM
CALCULATING AVERAGE MONTHLY PAYROLL: EMPLOYEES
Note: THIS INCLUDES OWNERS OF CORPORATIONS
1. Log into to your payroll processing company & go to Reports
• Find your total gross payroll (includes sick pay, vacation costs,
healthcare, etc.)
• Most payroll companies at this point have a PPP report you can use
https://support.gusto.com/1840352911/Paycheck-Protection-Program-
Report.htm
• Don’t forget to add employer portion of health insurance & retirement
2. Divide this by 12
3. Multiply by 2.5 (3.5 if NAICS 72: e.g., restaurant)
HOW TO APPLY: FILLING OUT THE FORM
• Average monthly payroll should include staff and owner compensation
combined, divided by 12
• If sole proprietor, Sch C Line 31 + if employees, total calculated payroll
• If partnership, Sch K Line 14a + if employees, total calculated payroll
• If corporation, owners are employees, so only need total calculated payroll
HOW TO APPLY: FILLING OUT THE FORM
HOW TO APPLY: FILLING OUT THE FORM
WHERE TO APPLY?
• Local banks, Community Lending Institutions, and online banks or alternative lenders (not a
broker or middle-man) have much higher satisfaction rates than the big banks.
• For Round 1, my clients had the best luck with Cross River Bank:
https://crossriversba.com/
• This time, we are using the CPA Loan Portal, powered by Biz2Credit:
https://www.biz2credit.com/disaster-support/cares-act-loans-coronavirus
• The SBA’s Lender Match Tool can help if you don’t have an existing relationship with a lender.
https://www.sba.gov/funding-programs/loans/lender-match
WHERE TO APPLY: SUGGESTED LENDER
Biz2credit.com/PPP
- Leading Funding Platform
- $3B+ Small Business Financing
- SBA Approved Direct Funder
- 250,000+ Small Businesses
APPLICATION RESOURCES
American Institute of CPAs FREE PPP Loan Resources
• https://future.aicpa.org/resources/download/ppp-loan-amount-calculators
• https://future.aicpa.org/resources/download/ppp-loan-forgiveness-calculator-excel
• https://future.aicpa.org/resources/download/summary-of-ppp-after-enactment-of-the-economic-aid-act
Gusto How To Apply for A PPP Loan: Step-By-Step
• https://gusto.com/blog/business-finance/second-draw-ppp-application-process
SCORE: How To Qualify & Apply For PPP
• https://www.score.org/resource/new-paycheck-protection-program-ppp-loans-how-qualify-and-apply
Clara CFO Group YouTube Series
• https://www.youtube.com/c/ClaraCFOGroup/videos
HOW TO APPLY: DENIED, NOW WHAT?
• Ask your lender why the application was denied
• Understand the status of your application
• 25% of applications from all lenders are being held up because of SBA validation requests (error codes)
or erroneous flags that are causing additional review by the SBA – little guidance being provided to
lenders on how to resolve these
• Do you have an existing PPP1 application pending forgiveness?
• If your application was denied because of an error, you can submit a new, corrected application
• Try another lender – make sure to withdraw application from first lender
• If you are sure you qualify, do not give up; consider requesting help from a community resource, small
local bank or an accounting professional
FORGIVENESS BASICS
• The amount of loan forgiveness can be up the full principal amount of the PPP loan and any accrued interest.
• At least 60% of the PPP loan proceeds must be used for payroll costs.
• For companies with loans over $50k, with employees, there are specific requirements for how it must be spent:
FTE reductions, reductions in employee salary or wages, three different safe harbors, limit of $100k in compensation;
owner limit of 2.5 months of 2019 compensation – topic for another webinar
• The “Loan Forgiveness Covered Period” begins on the date the lender disburses the PPP loan and ends on any
date selected by the borrower from 8-to-24 weeks after the date of disbursement (not either/or).
• Reminder: Payroll costs that are qualified wages taken into account in determining the Employee Retention
Tax Credit are not eligible for loan forgiveness.
• We are currently recommending to our clients that they wait to file for forgiveness.
https://www.jdsupra.com/legalnews/why-you-may-want-to-wait-to-file-for-1433896/
• ERC & PPP Interaction – so many complexities
https://www.businessasap.com/resources/blog-webinars/employee-retention-tax-credit/
FORGIVENESS BASICS: ELIGIBLE COSTS
Costs eligible for forgiveness (our clients are tracking each grant by “class” in QuickBooks to prevent double-dipping):
1. Payroll costs (or owner income replacement for self-employed borrowers) now defined the same as in application
2. Mortgage interest incurred before February 15, 2020
3. Rent on leases dated before February 15, 2020
4. Utilities for service that began before February 15, 2020
5. Covered operations expenditures
6. Covered property damage costs
7. Covered supplier costs
8. Covered worker protection costs
For more details, see the Clara CFO Group YouTube video –
https://www.youtube.com/watch?v=XX_ng_LggbU
FORGIVENESS BASICS: $50K OR LESS
A borrower can apply for forgiveness once they have used all of the loan proceeds.
01 02 03 04 05 06
Sign and Attest to Report loan Report number Report Retain records
submit a one- complying with amount of employees estimate of • 4 years for
page form PPP retained loan amount employment
(3508S) requirements spent on • 3 years for
payroll other
FORGIVENESS BASICS: $50K TO $150K
• In October 2020, the SBA released an Interim Final Rule stating
that PPP borrowers of $50,000 or less are exempted from any
reductions in forgiveness based on:
• Reductions in full-time-equivalent (FTE) employees; and
• Reductions in employee salary or wages.
• Whereas for loans of $150k or below, but greater than $50k,
though the simplified form can also be used – but the borrower
must maintain paperwork showing that these reductions were
in fact part of the calculation, or that one of the many safe
harbors applies.
https://www.sba.gov/document/sba-form-3508s-ppp-loan-forgiveness-form-3508s
https://www.journalofaccountancy.com/news/2020/oct/ppp-forgiveness-simplified-for-loans-50000-less.html
FORGIVENESS BASICS: ABOVE $150K
01 02
Form 3508EZ – for borrowers that did not reduce Form 3508 –
salary or wages of any employee by more than 25 for use by all borrowers that are ineligible to use
percent, AND: Forms 3508S or 3508EZ
a) did not reduce the number of employees or
average paid hours; or,
b) were unable to operate at the same level of
business capacity because of COVID-related
restrictions.
FORGIVENESS BASICS: WHAT HAPPENS IF NOT
FORGIVEN ENTIRELY
• Any portion of the loan that is not forgiven will carry an interest rate of 1.0% and is due to be
paid back within five years.
❖ Loans made before June 5 have a two-year term, as they were disbursed before the PPP
Forgiveness Act as enacted (negotiate with the bank to extend to 5 years)
• Payments may be deferred for the first ten months after the end of the covered period
• No pre-payment penalty
Official Resources and Forms
• SBA PPP Website
• Treasury PPP Website
• Top-Line Overview of First Draw PPP Loans
• Top-Line Overview of Second Draw PPP Loans
• SBA Form 2483 – First Draw PPP Loan Borrower Application
• SBA Form 2483-SD – Second Draw PPP Loan Borrower Application
• SBA Form 3508D – Borrower’s Disclosure of Certain Controlling Interests
• IFR 1 – PPP as amended by Economic Aid Act
• IFR 2 – PPP Second Draw Loans
• IFR 3 – Loan Forgiveness Requirements and Loan Review Procedures as Amended by Economic Aid Act
• SBA Guidance – How To Calculate Maximum Loan Amounts For First Draw PPP Loans
• SBA Guidance – Second Draw Paycheck Protection Program (PPP) Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts
Including What Documentation to Provide
• SBA Procedural Notice 5000-20075 – Repeal of EIDL Advance Deduction Requirement for SBA Loan Forgiveness Remittances to PPP Lenders
• SBA Procedural Notice 5000-20076 – First Draw Paycheck Protection Program Loan Increases After Enactment of the Economic Aid Act
• SBA Procedural Notice 5000-20077 – Paycheck Protection Program Borrower Resubmissions of Loan Forgiveness Applications Using Form
3508S, Lender Notice Responsibilities to PPP Borrowers, and Offset to Remittances to Lender for Lender Debts
• SBA Procedural Notice 5000-20078 – Paycheck Protection Program Excess Loan Amount Errors
• IRS Rev. Rul. 2021-02
QUESTIONS
Sign up for a webinar being offered by the SBA on Tuesday, February 23, 2021 at 10 am Central
This webinar and slide deck are intended for educational purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique situation before
acting on anything presented. The Dancing Accountant is providing educational content to help small business owners become more informed, but we cannot give legal advice; Nancy McClelland LLC DBA
The Dancing Accountant and its staff cannot be held liable for any use or misuse of this content.
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