Round 2:
Paycheck Protection Program

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Paycheck Protection Program Update 2021

Funding Well Capital is participating in the next round of PPP loans to eligible borrowers. In addition, there is other aspects of the Coronavirus Relief Package that may be applicable to your business. For updates, please check back on the website or sign up below to receive email updates.

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Who is eligible to apply?

PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

  • Have 300 or fewer employees.
  • Have used or will use the full amount of their first PPP loan.
  • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019. 

PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020. 

  •  PPP2 will also permit first-time borrowers from the following groups:
  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Not-for-profits, including churches.
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

PPP loan terms

As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable: 

  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
  • Covered operating costs such as software and cloud computing services and accounting needs.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.

PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.

COVID Relief Requirements

  • Must have been in business as of February 15, 2020
    • A borrower is considered to have been in operation on February 15, 2020, if it either had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC or was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees. A borrower must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable, payroll records, payroll tax filings, Form 1099-MISC, Schedule C or F, income and expenses from a sole proprietorship, or bank records
  • 25% reduction of gross receipts in any one quarter in 2020 as compared to that same quarter in 2019
    • The determination of gross receipts specifically excludes any amounts received under the CARES Act (which would include PPP loan proceeds) or an amendment to the CARES Act
    • The IFRs clarified that Gross Receipts includes all revenue in whatever form received or accrued (following the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
    • The IFRs clarified that borrowers may also demonstrate the 25% reduction by comparing their gross receipts from the 2019 tax return to the 2020 tax return
    • If the business was not in business in 2019 but was in business by February 15, 2020, then the business can compare Quarter 2, 3, or 4 of 2020 to Quarter 1 of 2020 to determine if the business qualifies
  • No more than 300 employees 

  • There are additional restrictions:
    • Lobbying firms and think tanks do not qualify; however, 501(c)6 organization will have access so long as no more than 15% of revenue is related to federal lobbying
    • Restrictions for companies owned 20% or more by companies created under the laws of or have significant operations in or a board member from the People’s Republic of China or significant operations in the Special Administrative Region of Hong Kong may not receive a PPP2 loan.
    • Receiving a grant under the new Shuttered Venues Operators program also makes a business ineligible for a PPP loan
  • Cannot have a PPP Loan Under Review
    • If a borrower’s PPP1 is under review by the SBA and/or information in SBA’s possession indicates that the borrower may have been ineligible for the PPP loan it received or for the loan amount is received, the borrower will have to wait until the issue related to the PPP loan is resolved. These procedures do not disqualify an eligible unresolved borrower from receiving a PPP2 Loan, in recognition that many flags will be resolved in the borrower’s favor the SBA will set aside available appropriations to fund a PPP2 applied for by unresolved borrowers in the event they are approved

Maximum Loan Calculation

The calculation is similar to the original PPP in that it is a multiple of an average payroll amount, however, with a cap and some nuances.  The new PPP maximum loan amount is the lesser of:

  • 2.5 times the average total monthly payroll (for NAICS 72 companies 3.5 times – see discussion below) or
  • $2 million

Each loan is limited to $2 million; however, businesses that are part of a single corporate group by affiliation rules shall receive no more than $4 million of PPP2 loans.

Average monthly payroll is calculated using one of the three metrics (at the option of the borrower):

  • Option 1 – One year period before the date on which the loan is made (for example, if a borrower is applying in February 2021, then the borrower could use February 2020 through January 2021, or if applying in January 2021, then the borrower could use the calendar year 2020) or
  • Option 2 – The calendar year 2019 (or fiscal years ending in December 2019) or
  • Option 3 – The calendar year 2020.

Similar to the original PPP, there are alternative calculations for seasonal employers and new entities (i.e. an entity that did not exist for the 1 year period preceding February 15, 2020).

Strategic Consideration: Because the borrower can pick the period, there may be some analysis needed to determine which time period would be more beneficial. However, it would seem for a business that qualifies (i.e. had a reduction in revenues) most would likely have lower payroll in 2020 than in 2019. Also, note the expanded definition below of health insurance premiums to be included in payroll costs for determining the maximum loan amount.

SBA Loans

No matter your business size, Funding Well Capital has a loan for you. With our vast experience, we’re proud to say that over our many years of business that we treat clients of all sizes, whether a Fortune 500 company or a business of 2-5 people with respect, integrity and always strive to find the best financing options for their business. We’ve also found that supporting small businesses has been a great way for us to invest in America.

 

Is a small business loan right for your company?

WHY ARE SMALL BUSINESSES IMPORTANT TO THE USA?

According to the US Census Bureau, there were nearly 28 million small businesses in 2010. That number qualifies for half of the economy’s private-sector employment. Furthermore, in 2011 statistics indicated that 64% of new jobs came from small businesses.

Small businesses are undoubtedly a good chunk of the American economy. Our belief is that small businesses define much of what the American dream is all about — Freedom, opportunity and the pursuit of financial independence.

WHAT IS A SMALL BUSINESS LOAN?

A small business loan is offered through the Small Business Administration (SBA). The SBA is a government agency that provides support to entrepreneurs and small business. The SBA was created to “aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy” of our country.

The SBA is vital in helping create jobs, create innovation, and provide opportunities for people of all types to earn an income and work toward their dreams.

WHAT’S DIFFERENT ABOUT SBA LOANS?

The gist of the difference between an SBA loan and a conventional loan comes down to a guarantee by the federal government. Conventional loans are held by private banks and/or lenders and will typically carry higher rates and shorter terms. SBA loans tend to have lower interest and longer terms, but often times can be more difficult to get approved with lengthier processing times.

TYPES OF SBA LOANS

To see what types of SBA loans exist and which is are right for your business, click the link below:

https://www.sba.gov/loanprograms

If you’re interested in learning more to see if you qualify for SBA loans, reach out to us at Funding Well Capital to see how we can assist you. The key to obtaining an SBA loan is working with someone who has a deep knowledge and understanding of the application and underwriting process to ensure you get the best rate and term for your business.

Working Capital

Paying bills, payroll, taxes and other expenses are something every business needs to manage. In many instances, businesses have found themselves in such a predicament where they don’t have enough to cover these necessities. In these instances, the best thing you can do for your company is to obtain extra cash through a working capital loan.

At Funding Well Capital, we understand the importance of money in your daily operations is essential in making your business go. We provide flexible payment options with different terms, and we have a 98% credit approval rating.

 

Why Working Capital Financing?

RETAIN YOUR EQUITY
Using our working capital programs may help avoid you from having to give up stake in your business. We have seen and heard of many business owners unnecessarily selling their equity to another investor or owner in exchange for cash flow or financial relief.
After all, the best part of owning a business is freedom. And partnering with a lender who can help you cover expenses without relinquishing ownership is a great decision.

FOCUS ON GROWING YOUR BUSINESS
It can keep you afloat through hard times, lessening the stress and pressure from collectors by providing you with breathing room.
Depending on your credit history, you may be able to avoid putting up collateral in a working capital financing agreement so long as you pay your loan back on time.

SHORTER PAYMENT PERIOD AND SIMPLE TERMS
A standard working capital loan usually comes with shorter payment period, simple and understandable terms that don’t require a lengthy approval process. By avoiding many of the headaches and long term commitments that come with financing, you’ll get what you need quickly and easily with no hassle.
No matter your financial predicament, we have you covered. We have successfully provided financing to companies as large as Fortune 500 and as small businesses with 2-5 employees. Our diverse team specializes in excellent customer service and quick approvals, so don’t hesitate to call soon. We’re standing by!

Equipment Financing

As companies grow and expand the inevitable demand for equipment only increases. Many of our clients have worked with larger banks in the past and were turned off by their experiences. That’s why we at Funding Well Capital have committed ourselves to offering a hassle-free approach to helping you finance your equipment. We offer the lowest rates and promise quick approvals, welcoming all credits and offer tailor-made options.
Historically, many banks have a one-size fits all approach to leasing. Their communication and attentiveness to clients were poor because they moved at their own pace, and not in sync with the customer’s needs. We’ve heard the complaints of “overpromised and under-delivered” more times than not.

Transparency is fundamental in our daily practices here at Funding Well Capital. We want all our clients to understand what is involved in all aspects of their engagement from beginning to end. This has been a trademark of our business and is commitment by each and everyone at our company. We realize that these are important decisions and only accurate information must be involved.

The Funding Well Capital Difference

OUR PROMISE
Our promise is that if you have good personal and business credit, you will qualify for our lowest possible rate (save for some extenuating circumstances). Even, if you have credit challenges, we’ll still provide a very low, competitive rate.

WE LISTEN
We listen to what the business owner is trying to accomplish. We’ll utilize our experiences from other transactions to make recommendations. We’re different in that we’re not just going to provide, say, an SBA application for that would be the most convenient method for us. Again we’ll examine what are the best potential options available for you to achieve your goals.

WE’RE COMMITTED TO YOU
We’re not a small company, but we treat everyone like a corner shop. Everyone we engage with our commitment is that you know that someone cares about your business and is willing to listen. If there’s something we can’t do, we won’t run you around in circles and waste your time. We’ll be upfront, informative and direct. In those rare instances that we cannot do it, we’ll make recommendations to put you in touch with someone that may be able to help.

Second Draw Paycheck Protection Program (PPP) Loans:

How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide

The Small Business Administration (SBA), in consultation with the Department of the Treasury, is providing this guidance to assist businesses in calculating their revenue reduction and payroll costs (and the relevant documentation that is required to support each set of calculations) for purposes of determining their eligibility for and amount of a Second Draw PPP Loan.
Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act, the Economic Aid Act, and the Paycheck Protection Program Interim Final Rules. The U.S. government will not challenge lender PPP actions that conform to this guidance1 and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time the action is taken.

Revenue Reduction
1. Question: What are “gross receipts” for the purpose of determining eligibility for a Second Draw PPP Loan?
Answer: For a for-profit business, gross receipts generally are all revenue in whatever form received or accrued (in accordance with the entity’s accounting method, i.e., accrual or cash) from whatever source, including from the sales of products or services, interest,  dividends, rents, royalties, fees, or commissions, reduced by returns and allowances but excluding net capital gains and losses. These terms carry the definitions used and reported on IRS tax return forms.

Gross receipts do not include the following:  

  • taxes collected for and remitted to a taxing authority if included in gross or total  income, such as sales or other taxes collected from customers (this does not  include taxes levied on the concern or its employees);
  • proceeds from transactions between a concern and its domestic or foreign  affiliates; and
  • amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.

All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.

For a nonprofit 501(c)(3) organization, a 501(c)(19) veterans organization, an eligible nonprofit news organization, an eligible 501(c)(6) organization, or an eligible destination marketing organization, gross receipts means gross receipts within the meaning of section 6033 of the Internal Revenue Code of 1986, which is the gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses including, for example, cost of goods or assets sold, cost of operations, or expenses of earning, raising, or collecting such amounts. Thus “gross receipts” includes, but is not limited to:

(i) the gross amount received as contributions, gifts, grants, and similar amounts  without reduction for the expenses of raising and collecting such amounts, (ii) the gross amount received as dues or assessments from members or affiliated  organizations without reduction for expenses attributable to the receipt of such  amounts,

(iii) gross sales or receipts from business activities (including business activities  unrelated to the purpose for which the organization qualifies for exemption, the net  income or loss from which may be required to be reported on Form 990-T),  (iv) the gross amount received from the sale of assets without reduction for cost or  other basis and expenses of sale, and

(v) the gross amount received as investment income, such as interest, dividends, rents,  and royalties.

Gross receipts of a borrower’s affiliates (unless a waiver of affiliation applies2) are calculated by adding the gross receipts of the business concern with the gross receipts of  each affiliate. 3

For more information on what constitutes gross receipts by entity type, see FAQ 5 below.

2. Question: For all entity types (e.g., for-profit businesses and nonprofit organizations), do “gross receipts” include PPP Loan proceeds that are forgiven (or EIDL advances)?

Answer: No. The amount of any forgiven First Draw PPP Loan or any EIDL advance,  which are not subject to federal income tax, is not included in the calculation of “gross  receipts”. 

3. Question: What reference periods can be used to determine whether the Applicant can demonstrate at least a 25 percent gross receipts reduction in order to qualify for a Second Draw PPP loan?

Answer: The appropriate reference periods depend on how long the Applicant has been  in business:

  •  For all Applicants, except those satisfying the conditions set forth below, the Applicant must demonstrate that gross receipts in any calendar quarter of 2020  were at least 25 percent lower than the same quarter of 2019. Alternatively,  Applicants may compare annual gross receipts in 2020 with annual gross receipts  in 2019 if they were in business in 2019. 
  • For entities not in business during the first and second quarters of 2019 but in  operation during the third and fourth quarters of 2019, Applicants must demonstrate that gross receipts in any quarter of 2020 were at least 25 percent lower than during either the third or fourth quarters of 2019. 
  • For entities not in business during the first, second, and third quarters of 2019 but  in operation during the fourth quarter of 2019, Applicants must demonstrate that  gross receipts in any quarter of 2020 were at least 25 percent lower than the fourth  quarter of 2019. 
  • For entities not in business during 2019 but in operation on February 15, 2020,  Applicants must demonstrate that gross receipts in the second, third, or fourth  quarter of 2020 were at least 25 percent lower than the first quarter of 2020. 
4. Question: What documentation do I need to provide to corroborate that my entity sustained at least a 25 percent reduction in gross receipts?

Answer: The following are the primary sets of documentation Applicants can provide to  substantiate their certification of a 25 percent gross receipts reduction (only one set is  required): 

  • Quarterly financial statements for the entity. If the financial statements are not  audited, the Applicant must sign and date the first page of the financial statement  and initial all other pages, attesting to their accuracy. If the financial statements  do not specifically identify the line item(s) that constitute gross receipts, the  Applicant must annotate which line item(s) constitute gross receipts.
  • Quarterly or monthly bank statements for the entity showing deposits from the  relevant quarters. The Applicant must annotate, if it is not clear, which deposits  listed on the bank statement constitute gross receipts (e.g., payments for purchases  of goods and services) and which do not (e.g., capital infusions).
  • Annual IRS income tax filings of the entity (required if using an annual reference  period). If the entity has not yet filed a tax return for 2020, the Applicant must fill  out the return forms, compute the relevant gross receipts value (see Question 5),  and sign and date the return, attesting that the values that enter into the gross  receipts computation are the same values that will be filed on the entity’s tax  return.
5. Question: If I use my entity’s annual income tax returns to demonstrate a gross receipts reduction of at least 25 percent, what amounts do I use to calculate gross receipts?

Answer: The amounts required to compute gross receipts varies by the entity tax return type: 4 

  • For self-employed individuals other than farmers and ranchers (IRS Form 1040  Schedule C): sum of line 4 and line 7 5
  • For self-employed farmers and ranchers (IRS Form 1040 Schedule F): sum of  lines 1b and 9 
  • For partnerships (IRS Form 1065): sum of lines 2 and 8, minus line 6 
  • For S-Corporations (IRS Form 1120-S): sum of lines 2 and 6, minus line 4
  • For C-Corporations (IRS Form 1120): sum of lines 2 and 11, minus the sum of  lines 8 and 9 
  • For nonprofit organizations (IRS Form 990): the sum of lines 6b(i), 6b(ii), 7b(i),  7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Part VIII 
  • For nonprofit organizations (IRS Form 990-EZ): sum of lines 5b, 6c, 7b, and 9 of  Part I. 
  • LLCs should follow the instructions that apply to their tax filing status in the  reference periods.
6. Question: I am applying for a Second Draw PPP Loan amount greater than $150,000. When do I need to provide the documentation to substantiate the reduction in gross receipts?

Answer: For a Second Draw PPP Loan amount greater than $150,000, the applicant must provide documentation substantiating the reduction in gross receipts with its Second Draw Borrower Application Form (SBA Form 2483-SD or lender’s equivalent form). The documentation must support the amounts provided in the application.

7. Question: I am an applicant for a Second Draw PPP Loan amount of $150,000 or less. When do I need to provide the documentation to substantiate the reduction in gross receipts?
Answer: For a Second Draw PPP Loan amount of $150,000 or less, the borrower must provide documentation substantiating the reduction in gross receipts before or at the time the borrower seeks loan forgiveness (or upon SBA request). The documentation must clearly identify both of the reference quarters (if not using annual comparison), must contain the gross receipts amounts for both quarters, and support the amounts provided.

(Payroll documentation to substantiate the amount of the loan requested must still be provided with the Second Draw PPP Loan application, see the next set of FAQs in this document for more information.)

8. Question: Can I document my reduction in gross receipts with income tax returns if my entity files taxes on the basis of a fiscal year that differs from the calendar year?
Answer: Entities that use a fiscal year to file taxes may document a reduction in gross receipts with income tax returns only if their fiscal year contains all of the second, third, and fourth quarters of the calendar year (i.e., have a fiscal year start date of February 1, March 1, or April 1).
Maximum Second Draw PPP Loan Amounts

This guidance describes payroll costs using calendar year 2019 as the reference period for determining payroll costs used to calculate loan amounts. However, borrowers are permitted to use payroll costs from either calendar year 2019 or calendar year 2020 for their Second Draw PPP Loan amount calculation. 6 Documentation, including IRS forms, must be supplied for the selected reference period. If a borrower is using the same lender and same payroll timeframe as it used for its First Draw PPP Loan and already submitted the required payroll documentation to the lender, no additional payroll documentation is required to be submitted with its Second Draw PPP Loan application.

1. Question: I am self-employed and have no employees. How do I calculate my maximum Second Draw PPP Loan amount? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount that can be borrowed if you are self-employed and have no employees, and your principal place of residence is in the United States, including if you are an independent contractor or operate a sole proprietorship (but not if you are a partner in a partnership):

  • Step 1: Find your 2019 IRS Form 1040 Schedule C line 31 net profit amount. 7 If this amount is over $100,000, reduce it to $100,000. If this amount is zero or less, you are not eligible for a PPP loan.
  • Step 2: Calculate the average monthly net profit amount (divide the amount from Step 1 by 12).
  • Step 3: Multiply the average monthly net profit amount from Step 2 by 2.5. 8

Your 2019 IRS Form 1040 Schedule C must be provided to substantiate the applied-for Second Draw PPP Loan amount. You must also provide a 2019 IRS Form 1099-MISC detailing nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank statement, or book of record establishing you were self-employed in 2019 and a 2020 invoice, bank statement, or book of record establishing you were in operation on February 15, 2020.

2. Question: I am self-employed and have employees. How do I calculate my maximum Second Draw PPP Loan amount (up to $2 million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount that can be borrowed if you are self-employed with employees, including if you are an independent contractor or operate a sole proprietorship (but not if you are a partner in a partnership):

Step 1: Compute your 2019 payroll costs by adding the following:

  • 2019 IRS Form 1040 Schedule C line 31 net profit amount; 9
    • if this amount is over $100,000, reduce it to $100,000;
    • if this amount is less than zero, set this amount at zero;
  • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using:
    • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c
      column 1) from each quarter,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excess
      of $100,000, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the United States;
  • 2019 employer contributions for employee group health, life, disability, vision, and dental insurance (the portion of IRS Form 1040 Schedule C line 14 attributable to those contributions);
  • 2019 employer contributions to employee retirement plans (IRS Form 1040 Schedule C line 19); and
  • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage
    reporting forms).

Step 2: Calculate the average monthly payroll costs amount (divide the amount from Step 1 by 12).

Step 3: Multiply the average monthly payroll costs amount from Step 2 by 2.5. 10

Your 2019 IRS Form 1040 Schedule C, IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with documentation of any retirement or group health, life, disability, vision, and dental insurance contributions, must be provided to substantiate the applied-for Second Draw PPP Loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date.

3. Question: I am a self-employed farmer or rancher who reports my income on IRS Form 1040 Schedule F. What documentation must I provide in place of Schedule C and how should my maximum Second Draw PPP Loan amount be calculated (up to $2 million)?

Answer: Self-employed farmers and ranchers (i.e., those who file IRS Form 1040 Schedule F and then report Schedule F income on IRS Form 1040 Schedule 1) should use IRS Form 1040 Schedule F in lieu of Schedule C.

The calculation for self-employed farmers and ranchers without employees is the same as for Schedule C filers that have no employees, except that Schedule F line 9 (gross income) should be used to determine the loan amount rather than Schedule C line 31 (net profit).

The calculation for self-employed farmers and ranchers with employees is the same as for Schedule C filers that have employees with several exceptions. First, in place of Schedule C line 31 (net profit), the difference between Schedule F line 9 (gross income) and the sum of Schedule F lines 15, 22, and 23 (for employee payroll) should be used. Second, employer contributions for employee group health, life, disability, vision and dental insurance (portion of Schedule F line 15 attributable to those contributions) and employer contributions for employee retirement contributions (Schedule F line 23) should be used in place of those respective lines on Schedule C.

The documentation requirements are the same as for Schedule C filers except the 2019 IRS Form 1040 Schedule 1 and Schedule F must be included with the Second Draw PPP Loan application in place of IRS Form 1040 Schedule C. Additionally, for farmers and ranchers with employees, IRS Form 943 should be provided in addition to, or in place of, IRS Form 941, as applicable.

4. Question: How do partnerships apply for Second Draw PPP Loans and how is the maximum Second Draw PPP Loan amount calculated for partnerships (up to $2 million)? Should partners’ self-employment income be included on the business entity level Second Draw PPP Loan application or on separate Second Draw PPP Loan applications for each partner? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount that can be borrowed for partnerships (partners’ self-employment income should be included on the partnership’s PPP loan application, individual partners may not apply for separate PPP loans):

Step 1: Compute 2019 payroll costs by adding the following:

  • 2019 Schedule K-1 (IRS Form 1065) Net earnings from self-employment of individual U.S.-based general partners that are subject to self-employment tax, multiplied by 0.9235,11 up to $100,000 per partner;12
    • Compute the net earnings from self-employment of individual
      U.S.-based general partner that are subject to self-employment tax
      from box 14a of IRS Form 1065 Schedule K-1 and subtract (i) any
      section 179 expense deduction claimed in box 12; (ii) any
      unreimbursed partnership expenses claimed; and (iii) any depletion
      claimed on oil and gas properties.
    • if this amount is over $100,000 for a partner, reduce it to
      $100,000;
    • if this amount is less than zero for a partner, set this
      amount at zero;
  • 2019 gross wages and tips paid to employees whose principal place of residence is in the United States (if any), up to $100,000 per employee,
    which can be computed using:
    • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c
      column 1) from each quarter,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excess
      of $100,000, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the United States;
  • 2019 employer contributions for employee (but not partner) group health, life, disability, vision, and dental insurance, if any (portion of IRS Form
    1065 line 19 attributable to those contributions);
  • 2019 employer contributions to employee (but not partner) retirement plans, if any (IRS Form 1065 line 18); and
  • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage
    reporting forms), if any.

 

Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).

Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.13

  • The partnership’s 2019 IRS Form 1065 (including K-1s) must be provided to substantiate the applied-for Second Draw PPP Loan amount. If the partnership has employees, other relevant supporting documentation, including the 2019 IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements) along with records of any retirement or group health, life, disability, vision, and dental insurance contributions must also be provided to substantiate the PPP loan amount. If the partnership has employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the partnership was in operation and had employees on that date. If the partnership has no employees, an invoice, bank statement, or book of record establishing the partnership was in operation on February 15, 2020 must instead be provided.

 

5. Question: How is the maximum Second Draw PPP Loan amount calculated for S corporations and C corporations (up to $2 million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount that can be borrowed for corporations, including S and C corporations:

Step 1: Compute 2019 payroll costs by adding the following:

  • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using:
    • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c column 1) from each quarter,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excess
      of $100,000, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the United States;
    • 2019 employer retirement contributions (IRS Form 1120 line 23 or IRSForm 1120-S line 17); and
    • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage
      reporting forms).2019 employer group health, life, disability, vision, and dental insurance contributions (portion of IRS Form 1120 line 24 or IRS Form 1120-S line 18 attributable to those contributions);14

Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.15

Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).

  • The corporation’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with the filed business tax return (IRS Form 1120 or IRS 1120-S) or other documentation of any retirement and group health, life, disability, vision, and dental insurance contributions, must be provided to substantiate the applied-for Second Draw PPP Loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date.

 

6. Question: How is the maximum Second Draw PPP Loan amount calculated for eligible nonprofit organizations (up to $2 million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)

Answer: The following methodology should be used to calculate the maximum amount that can be borrowed for eligible nonprofit organizations (eligible nonprofit religious institutions or other eligible nonprofits without an IRS Form 990 filing requirement, see the next question):

Step 1: Compute 2019 payroll costs by adding the following:

  • 2019 gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using:
    • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c column 1) from each quarter,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excess
      of $100,000, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the United States;
  • 2019 employer group health, life, disability, vision, and dental insurance contributions (portion of IRS Form 990 Part IX line 9 attributable to those contributions);
    • 2019 employer retirement contributions (IRS Form 990 Part IX line 8); and
      • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage
        reporting forms).

Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).

Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.16

  • The nonprofit organization’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with the filed IRS Form 990 Part IX or other documentation of any retirement and group health, life, disability, vision, and dental insurance contributions, must be provided to substantiate the applied for Second Draw PPP Loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date. Eligible nonprofits that file IRS Form 990- EZ should rely on that form and those that do not file an IRS Form 990 or 990-EZ, typically those with gross receipts less than $50,000, should see the next question.
7. Question: How is the maximum Second Draw PPP Loan amount calculated for eligible nonprofit religious institutions, veterans organizations, and tribal businesses (up to $2 million)? (Note that PPP loan forgiveness amounts will depend, in part, on the total amountspent during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount that can be borrowed for eligible nonprofit religious institutions, veterans organizations and tribal businesses:

Step 1: Compute 2019 payroll costs by adding the following:

  • 2019 gross wages and tips paid to employees whose principal place of residence is in the United States, up to $100,000 per employee, which can be computed using:
    • 2019 IRS Form 941 Taxable Medicare wages & tips (line 5c column 1) from each quarter,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excessof $100,000, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the U.S.;
  • 2019 employer group health, life, disability, vision, and dental insurance contributions;
  • 2019 employer retirement contributions and
  • 2019 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage
    reporting forms).

Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by 12).

Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.17

  • The entity’s 2019 IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with documentation of any retirement and group health, life, disability, vision, and dental insurance contributions, must be provided to substantiate the applied-for Second Draw PPP loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date.
8. Question: I am an LLC owner. Which set of instructions applies to me?

Answer: LLCs should follow the instructions that apply to their tax filing status in the reference period used to calculate payroll costs (2019 or 2020)—i.e., whether the LLC filed (or will file) as a sole proprietor, a partnership, or a corporation in the reference period.

9. Question: What other documentation can an applicant provide for the purpose of substantiating payroll costs used to calculate the applied-for Second Draw PPP Loan amount?

Answer: An applicant may provide IRS Form W-2s and IRS Form W-3 or payroll processor reports, including quarterly and annual tax reports, in lieu of IRS Form 941. Additionally, very small businesses that file an annual IRS Form 944 or agricultural employers that file an annual IRS Form 943 should rely on and provide IRS Form 944 or IRS Form 943 in lieu of IRS Form 941.

An applicant may provide records from a retirement administrator to document employer retirement contributions. An applicant may also provide records from a health insurance company or third-party administrator for a self-insured plan to document employer health insurance contributions.

10. Question: How is the maximum Second Draw PPP Loan amount calculated for a corporation or nonprofit not in operation for the full one-year period preceding February 15, 2020? (Note that PPP loan forgiveness amounts will depend, in part, on the total amount spent during the covered period following disbursement of the PPP loan.)
Answer: The following methodology should be used to calculate the maximum amount that can be borrowed:

Step 1: Compute total payroll costs from when first in operation in 2019 or 2020 through the end of calendar year 2020 by adding the following:

  • Gross wages and tips paid to your employees whose principal place of residence is in the United States, up to $100,000 per employee annualized, which can be computed using:
    • IRS Form 941 Taxable Medicare wages & tips (line 5c-column 1)
      from each quarter the business was in operation,
    • Plus any pre-tax employee contributions for health insurance or
      other fringe benefits excluded from Taxable Medicare wages &
      tips,
    • Minus (i) any amounts paid to any individual employee in excess
      of the product of $8,333 and the number of months in operation
      through 2020, and (ii) any amounts paid to any employee whose
      principal place of residence is outside the United States;
  • Employer group health, life, disability, vision, and dental insurance
    contributions;18
  • Employer retirement contributions; and
  • Employer state and local taxes assessed on employee compensation,
    primarily state unemployment insurance tax (from state quarterly wage
    reporting forms).

Step 2: Calculate the average monthly payroll costs (divide the amount from Step 1 by number of months in operation from 2019 through the end of 2020).

Step 3: Multiply the average monthly payroll costs from Step 2 by 2.5.19

  • The entity’s IRS Form 941s and state quarterly wage unemployment insurance tax reporting form from each quarter the entity was in operation (or equivalent payroll processor records or IRS Wage and Tax Statements), along with documentation of any retirement and group health, life, disability, vision, and dental insurance contributions, must be provided to substantiate the applied-for Second Draw PPP Loan amount. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date.
11. Question: I am self-employed (or a partnership) and was in operation on February 15, 2020, but was not in operation for the full one-year period preceding February 15, 2020. I have filed or will file a Form 1040 Schedule C or Schedule F (or Form 1065) for 2020. What reference period should I be using to compute my Second Draw PPP Loan amount?

Answer: In this case, your maximum Second Draw PPP Loan amount is the average monthly payroll based on the number of months in which you were in operation from 2019 through the end of calendar year 2020, excluding costs over $100,000 on an annualized basis.

Step 1: Compute total applicable owner compensation across 2019 (if in operation that year) and 2020 income tax returns:20

  • For self-employed Schedule C filers, it is the sum of the value of Form 1040 Schedule C line 31 net profit.
    • If this amount is less than zero, set this amount to zero;
  • For self-employed farmer or rancher with no employees, it is the sum of the value of Form 1040 Schedule F line 9 gross income.
  • For self-employed farmer or rancher with employees, it is the sum of difference between the gross income amount on Form 1040 Schedule F line 9 and employee payroll costs from the sum of Form 1040 Schedule F lines 15, 22, and 23.
    • If this amount is less than zero, set this amount to zero.
  • For partnerships, it is the sum of Schedule K-1 (IRS Form 1065) net earnings from self-employment of individual U.S.-based general partners that are subject to self-employment tax, multiplied by 0.9235.
    • Compute the net earnings from self-employment of individual U.S.-
      based general partner that are subject to self-employment tax from
      box 14a of IRS Form 1065 Schedule K-1 and subtract (i) any section
      179 expense deduction claimed in box 12; (ii) any unreimbursed
      partnership expenses claimed; and (iii) any depletion claimed on oil
      and gas properties. If this amount is less than zero, set this amount to
      zero.

Step 2: If the amount from Step 1 is greater than the product of $8,333 and the number of months in operation from 2019 through the end of 2020, set it to this value.

  • For partnerships, this cap applies separately to each general partner.

Step 3: If the entity has employees, enter the amount computed from following the instructions from FAQ 10 Step 1, otherwise enter 0.

Step 4: Calculate the average monthly payroll costs (add Step 2 and Step 3 together and then divide that sum by the number of months in operation from 2019 through the end of 2020).

Step 5: Multiply the average monthly payroll costs from Step 4 by 2.5.21

  • Your applicable income tax return (Form 1040 Schedule C, Form 1040 Schedule F, or Form 1065 (including K-1s)) from 2019 (if applicable) and 2020 must be provided to substantiate the applied-for Second Draw PPP loan amount. If you had employees, your IRS Form 941s and state quarterly wage unemployment insurance tax reporting form from each quarter the entity was in operation (or equivalent payroll processor records or IRS Wage and Tax Statements), along with documentation of any retirement and group health, life, disability, vision, and dental insurance contributions must be provided to substantiate the applied-for Second Draw PPP Loan amount. Additionally, a payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish you were in operation and had employees on that date. If you did not have employees, an invoice, bank statement, or book of record establishing you was in operation on February 15, 2020 must instead be provided.
12. Question: If I used payroll costs from the prior 12 months when computing my First Draw PPP Loan amount, can I continue to use those figures to compute my Second Draw PPP Loan amount?

Answer: No, payroll costs from the precise 12-month period prior to the First Draw PPP Loan cannot be used to compute the Second Draw PPP Loan amount. Any borrower that used payroll costs from the prior 12 months when computing its First Draw PPP Loan amount can calculate the amount for its Second Draw PPP Loan amount using calendar year 2019 or calendar year 2020 payroll costs.22 A borrower that used calendar year 2019 for its First Draw PPP Loan amount may continue to do so.

13. Question: Can I enter NAICS code 72 on my Second Draw PPP Loan application if the business activity code line was left blank on my business’s most recently filed income tax return?
Answer: If an entry for this line is missing from your tax return, you should report the industry code that is most applicable to your business’ primary business activity. If your business is in the Accommodation and Food Services sector (e.g., a hotel, restaurant, bar), you can only report a NAICS Code beginning with 72 if you can substantiate this with alternative documentation, such as permits or licenses issued by local governments that are unique to this sector.
14. Question: In addition to pre-tax employee contributions for health insurance, what are the other pre-tax employee contributions for fringe benefits that may have been excluded from IRS Form 941 Taxable Medicare wages & tips that is part of employee gross pay?
Answer: Employee contributions and deductions from pay for flexible spending arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan, qualified transit or parking benefits (up to $270 a month), and group life insurance (for up to $50,000 of coverage) may have been excluded from IRS Form 941 Taxable Medicare wages & tips. However, pre-tax employee contributions to retirement plans are included in Taxable Medicare wages & tips and should not be added to that figure to arrive at gross pay.
15. Question: How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?
Answer: Payroll costs are calculated on a gross basis without regard to federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees’ pay. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer. However, payroll costs do not include the employer’s share of payroll tax. For example, the wages of an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, count as $4,000 in payroll costs. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute. 23
16. Question: Is there a limit on the dollar amount of Second Draw PPP Loans a corporate group can receive?
Answer: Yes, businesses that are part of the same corporate group cannot receive Second Draw PPP Loans in a total amount of more than $4 million. For purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent.
1. This document does not carry the force and effect of law independent of the statutes and regulations on which it is based.

2See subsection (d) of the interim final rule titled “Business Loan Program Temporary Changes; Paycheck  Protection Program Second Draw Loans” posted on SBA’s website January 6, 2021 (86 FR 3712).

3 If a borrower has acquired an affiliate or been acquired as an affiliate during 2020, gross receipts includes the  receipts of the acquired or acquiring concern. This aggregation applies for the entire period of measurement, not just  the period after the affiliation arose. However, if a concern acquired a segregable division of another business  concern during 2020, gross receipts do not include the receipts of the acquired division prior to the acquisition. Similarly, the gross receipts of a former affiliate are not included. This exclusion of gross receipts of such former  affiliate applies during the entire period of measurement, rather than only for the period after which affiliation  ceased. However, if a borrower sold a segregable division during 2020, the gross receipts will continue to include  the receipts of the division that was sold. All terms in this paragraph have the meaning attributed to them by the IRS.

4 Any of the following included in the specific tax form lines must be excluded from the computation and annotated on the return: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from
transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. In particular, for tax returns that include sales tax as income and then as a deduction, annotate next to the “taxes and license” line of the return the amount of such taxes that were included in income.

5 If you file multiple Schedule C forms on the same Form 1040, you must include and sum across all of them.

6 All components of payroll costs must be from the same calendar year. Payroll costs, including for covered benefits, can only be included for employees whose principal place of residence is in the United States.

7 If you are using 2020 amounts and you have not yet completed a 2020 return, fill it out and compute the value.

8 Multiply by 3.5 if your business is in the Accommodation and Food Services sector (NAICS Code 72) and the business activity code reported on your most recent IRS Form 1040 Schedule C line B begins with 72.

9If you are using 2020 payroll costs and have not yet completed a 2020 return, fill it out and compute the value.

10 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on your most recent IRS Form 1040 Schedule C line B begins with 72.

11 This treatment follows the computation of self-employment tax from IRS Form 1040 Schedule SE Section A line 4 and removes the “employer” share of self-employment tax, consistent with how payroll costs for employees in the partnership are determined.

12 If the partnership is using 2020 payroll costs and the Form 1065 for 2020 has not yet been completed, fill out the form.

13 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on your most recent IRS Form 1065 Line C begins with 72.

14 Note that employer contributions for group health, life, disability, vision, and dental insurance for S-Corporation employees who own more than a 2 percent stake in the business (or employees who are family members of such owners) are not included in this figure as such contributions are already included in gross wages.

15 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on your most recent IRS Form 1120 Schedule K, line 2A (IRS Form 1120-S item B) begins with 72.

16 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on your most recent IRS Form 990 Part VIII, adjacent to line 2A begins with 72.

17 Multiply by 3.5 if your business is in the Accommodation and Food Services sector (NAICS code that begins with 72, e.g., a hotel, restaurant, bar).

18 Note that employer contributions for group health, life, disability, vision, and dental insurance for S-Corporation employees who own more than a 2 percent stake in the business (or employees who are family members of such owners) are not included in this figure as such contributions are already included in gross wages.

19 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on your most recent income tax return (Form 1120 Schedule K, line 2A for corporations, Form 1120-S item B for S-corporations, and Form 990 Part VIII, adjacent to line 2A for nonprofits) begins with 72.

20 If you have not completed your applicable 2020 return, fill it out.

21 Multiply by 3.5 if your business is in the Accommodation and Food Services sector and the business activity code reported on the most recent income tax return (IRS Form 1040 Schedule C line B for self-employed who are not farmers or ranchers and Form 1120-S item B for partnerships) begins with 72.

22 Borrowers who are not self-employed (including sole proprietorships and independent contractors) are also permitted to use the precise 1-year period before the date on which the Second Draw Loan is made to calculate payroll costs if they choose not to use 2019 or 2020.

23 The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period”. As described above, the SBA interprets this statutory exclusion to mean that payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages. Unlike employer-side payroll taxes, such employee-side taxes are ordinarily expressed as a reduction in employee take home pay; their exclusion from the definition of payroll costs means payroll costs should not be reduced based on taxes imposed on the employee or withheld from employee wages. This interpretation is consistent with the text of the statute and advances the legislative purpose of ensuring workers remain paid and employed. Further, because the reference period for determining a borrower’s maximum loan amount will largely or entirely precede the period during which borrowers will be subject to the restrictions on allowable uses of the loans, for purposes of the determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion will apply with respect to such taxes imposed or withheld at any time, not only during such period.

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