What to know if you are applying for a second PPP loan

For Andrea Herrera, the founder of Amazing Edibles Catering in Chicago, the pandemic tested its ability to adapt on the fly against the background of declining revenues.

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

Herrera has also opened a new business, Boxperience, a service that offers gourmet snack boxes.

Creativity aside, her businesses continue to suffer from the pandemic. Herrera fired about 80 percent of its staff in March last year as customers canceled events and home orders began to take effect.

A mix of funding sources, including state and local grants and a forgivable $ 144,000 loan through the Wage Protection Program, have kept it afloat so far.

Herrera, like many other small business owners, is relying on a second PPP loan to receive it in the spring.

“I hope that will take us until May,” she said, “and this in Chicago, with vaccines that things are reopening and we will have events with 50 to 100 people.”

The U.S. Small Business Administration reopened its forgivable loan program on Jan. 11 after Congress authorized up to $ 284 billion as part of the Covid aid act that went into effect in late 2020.

Most second-time borrowers can take a maximum loan amount of 2.5 times the average monthly costs in 2019 or 2020, up to $ 2 million.

Companies in the accommodation and food industry – such as Herrera – can borrow up to 3.5 times the average monthly salary costs for 2019 or 2020. These companies are also subject to a ceiling of $ 2 million.

Whether 3 ½ months of pay will be enough to get food and hospitality business by launching the vaccine, it is in the air. But companies in desperate need are likely to apply.

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

“There are several obstacles to overcome this time to get the loan.”

The SBA has set three basic standards that borrowers must meet a second time to apply for a forgivable loan.

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

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

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

For example, banks may ask for proof that your business 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, make your quarterly profit and loss statements over the previous year,” he said.

Moreover, some lenders urge their clients to receive the first round of PPP loans before allowing them to apply for a second round of financing – even if the SBA does not require it, tax professionals said.

While PPP loans are generally forgivable if borrowers spend at least 60% of their funding on salary expenses, tax professionals have so far given up on forgiveness.

This is due to the fact that many of them want to see if the same customers can benefit from new provisions in the Covid rescue act at the end of the year, including the extension of the employee retention credit.

More from Smart Tax Planning:
How to be unemployed in 2020 could lead to a surprise tax bill
The IRS is delaying the start of the fiscal season until February 12
Biden’s stimulus proposal stimulates these tax credits for families

These characteristics could affect the image of tax planning for small businesses.

“I know none of my clients have apologized yet,” said Adam Markowitz, a registered agent and vice president at the Howard L Markowitz PA CPA in Leesburg, Florida.

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

Before applying to the bank for the second round of financing, small businesses need to make sure they are ready to provide documentation – including their profit and loss statements and salary data.

They should also contact a tax professional to take care of them through the process, ensure that they qualify for more funding, and determine whether they could benefit from key tax credits for employers.

Tax professionals and small businesses also spoke positively about their experience working with local creditors.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, has gone from hoping to earn $ 1 million in 2020 to outsourcing his boxing truck that summer to help with the fulfillment.

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

His CPA helped him prepare his salary documents and is likely to help secure a second round of PPP funding.

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

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