With PPP2 loans officially opened to all borrowers, we have compiled answers for frequently asked questions for our clients and subscribers.
PPP2
1. How does affiliation rules affect a borrower’s eligibility for PPP2?
The affiliation rules for PPP2 is the same with the first round, except for NAICS Code 72 entities, as employee headcount is then looked at on a per location basis.
2. Do PPP loans need to be reported as income?
For tax purposes, PPP loans are not recorded as income. They are treated as tax exempt income.
3. Can you apply for PPP2 even if your forgiveness application for PPP1 has not yet been approved, or you have not submitted your application?
Yes, you can. As long as you WILL be forgiven for PPP1 or you believe you will be forgiven. To qualify for PPP2, you must’ve previously received the PPP1 loan and will use or have used the full amount only for authorized uses. You must also qualify for all PPP2 requirements.
Some lenders are requiring PPP borrowers to apply for forgiveness on their first-draw PPP loan before they file a second-draw PPP loan. This is NOT a requirement of the SBA and Treasury, so CPAs may want to encourage their business clients to consider other lenders that will process the second-draw loan application without the business having to file for forgiveness on their first PPP loan.
4. If my business received a $1.5 million loan during the first round, can I only receive at most $500,000 (so as not to go over the $2 million limit)?
No, if you received $1.5 million for round one, you can receive $1.5 million in the second. If you receive greater than $2million in the first round, you can only receive $2 million (maximum amount) in the second round.
5. What is the definition of gross receipts?
The new IFR guidance defines ‘’gross receipts’’ as all revenue in any form received from whatever source (such as sales, interest, dividends, rents, fees, royalties, etc.), reduced by returns and allowances. It should be noted, first draw forgiven PPP loans are excluded from your 2020 gross receipts. Gross receipts also exclude net capital gains, or losses, taxes collected for and remitted to taxing authorities as well as sales to affiliates.
6. How do I calculate gross receipts to determine a decrease of at least 25%?
As stated above, gross receipts include ALL revenue in whatever form received or accrued. The method of calculating applicable gross receipts should be in accordance with your business’ accounting method reporting on tax return.
7. Is the 300 employee count based on my business pre-pandemic employment level or current level?
The 300 employee count is based on the time of the loan application.
8. When will a borrower receive the PPP2 loan after getting approved by the lender?
After the PPP2 loan is approved, the lender must make disbursements within ten calendar days.
9. What relevant period is used to calculate eligible payroll costs?
Under PPP2, the applicant has the option to select either: calendar year 2020 (the twelve-month period prior to when the loan is created), or calendar year 2019.
10. What are the terms for PPP2 loans?
PPP2 loans are subject to similar terms to PPP1. Interest rates are at 100 basis points or one percent on a non-compounding basis with maturity of 5 years.
EIDLS
1. Can I apply for PPP2 and EIDLs
Yes, you may apply for both programs if you meet both of their requirements. The new act signed last December 2020 states that businesses no longer have to choose between the two.
2. If a borrower previously applied for forgiveness and received an EIDL advance, will the advance be forgiven now?
The EIDL change is only eligible to applicants who have not yet applied for loan forgiveness.
3. Can a person with more than one business apply for each separate EIDL?
Yes, IF the businesses are filed on separate tax returns.
4. Will the EIDL application go live outside of the PPP application?
A. Yes, EIDL applications are handled through the SBA website while the PPP loans are handled through your local banks or other lending institutions.
Levine and Associates is a team of experienced accounting and tax professionals based in New York City. If you need assistance on applying for a PPP loan or EIDL advance, you may book a FREE consultation with us at https://calendly.com/levine-and-associates or send us an email at josh@levineandassoc.com