Janina Bobak – Business Banking Credit Officer & John Buckley – Senior Credit Analyst,
The Paycheck Protection Program was launched early in 2020 in an effort to provide economic relief to American businesses impacted by the coronavirus pandemic. Despite more than half a trillion dollars in loans to nearly five million businesses, the need is still great.
Recently, a second round of PPP funding was authorized by Congress and local lenders – including Penn Community Bank – are doing our part to help local businesses during this trying time.
Here’s what you and your business need to know about the latest round of PPP.
What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) is a business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to help certain businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue paying their workers. The program allows entities to apply for low-interest rate loans to pay for their payroll and certain other costs.
The first round of PPP opened in March 2020 and ran through early summer when funds where exhausted. Through our network of retail branches and commercial lenders, the team at Penn Community Bank processed over 730 PPP loan requests, resulting in $83 million dollars provided to local employers and supported nearly 10,000 jobs within our community.
What is different in this second round of PPP?
PPP funds are available to first time borrowers – including businesses that were or are temporarily closed due to the pandemic – and returning borrowers. Businesses applying for a second round of PPP must also have used all of the first tranche of funds prior to or by the date of receiving new funds. Specifically, this round carves out additional benefits for restaurants, hotels, and other businesses under the NAICS Code 72. These businesses can calculate their loan amount by multiplying one month of 2019 payroll by 3.5 instead of 2.5, thus receiving more funds. This also applies to seasonal businesses and those without 12 months of operating history. Further, for restaurants and hotels with multiple locations, as long as each one has fewer than 300 employees, each individual location may apply for a separate loan. The maximum loan amount across all locations, however, is capped at $4 million.
Who is eligible for a Second Draw PPP Loan?
To be eligible for a second draw PPP loan, a business must have:
- Previously received a First Draw PPP Loan and has used (or will use) the full amount for permissible expenses.
- Experienced a reduction of 25% or greater in gross receipts between comparable quarters in 2019 and 2020.
- Have 300 or fewer employees.
What are the terms and condition of Second Draw PPP loan?
The Second Draw PPP loan terms and conditions are largely subject to the same terms and condition as the first round. They include the following:
- Loans are 100% guaranteed by the federal government
- No collateral is required
- No personal guarantees are required
- The interest rate will be 100 basis points or 1%
- The maturity is 5 years
- Loans will be processed by authorized lenders who will be permitted to rely on certifications of the borrowers to determine the borrower’s eligibility and use of the loan proceeds.
What is the maximum loan amount for a Second Draw PPP Loan?
The maximum loan amount will be 2.5 times the average monthly payroll not to exceed $2 million for majority of the businesses and 3.5 times the average monthly payroll for businesses that are in the NAICS code starting with 72 not to exceed $2 million.
How is revenue reduction calculated?
A borrower must calculate revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with their gross receipts for the corresponding quarter of 2019.
What is the accounting method for gross receipts?
Gross receipts is defined as all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
How do you submit an application for a Second Draw PPP Loan and what documentation must I provide to demonstrate eligibility?
Please reach out to your current relationship manager, call one of our branch location or submit an inquiry through our website. Required documentation will very based on the entity type. Most will require Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s. Sole proprietors will need to provide their Schedules C for 2019 or 2020, please refer to the IFR located at treasury.gov for further guidance.
For complete details about the PPP program, funding and eligibility, please visit the SBA website.