What to know when applying for a second PPP loan

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic tested her ability to adapt amid declining revenue.

Since March last year, the firm has shifted from catering weddings and corporate events to providing first-class meals and offering home delivery services.

Herrera has also opened a new business, Boxperience, a service that delivers gourmet snacks.

Aside from creativity, her businesses are still suffering from the pandemic. Herrera fired about 80% of its staff last March because customers canceled events and home orders began to take effect.

A chunk of funding sources, including state and local grants and a forgivable $ 144,000 loan through the Paycheck protection program, have kept her going so far.

Herrera, like many other small businesses, is counting on a second loan from PPP to get her through the spring.

“I’m hopeful that it will take us to May,” she said, “and that in Chicago, with the vaccines that things will reopen and we will have opportunities with 50 to 100 people.”

The U.S. Small Business Administration reopened its forgiving lending program on January 11 after Congress approved up to $ 284 billion as part of Covid’s relief law, which went into effect in late 2020.

Most two-day lenders can take a maximum loan amount of 2.5 times their average monthly 2019 or 2020 payment cost, up to $ 2 million.

Businesses in the accommodation and food services industry, such as Herrera, can borrow up to 3.5 times their average monthly wage costs for 2019 or 2020. The companies are also subject to an amount of $ 2 million.

Whether 3 ½ months salary will be enough to get food and hospitality businesses through vaccination of the vaccine is in the air. But businesses in desperate need will probably try to apply.

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

“There are more obstacles to cross this time to get the loan.”

The SBA has set three basic standards that second-time lenders must meet in order to apply for a forgivable loan.

First, they should have already received a first withdrawal PPP loan and used the full amount – or used it – for authorized purposes. Second, these businesses can have no more than 300 employees.

Finally, they should show that in the quarter between 2019 and 2020, they dropped at least 25% in gross income.

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

For example, banks may demand proof that your business has suffered a setback.

“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, you deliver quarterly profit and loss statements compared to the previous year,” he said.

Furthermore, some credit providers are also trying to get their clients to forgive their first round of PPP loans before they are allowed to apply for a second round of financing – even though the SBA does not require it, tax officials said.

Although PPP loans are generally forgivable if borrowers spend at least 60% of the financing on wage expenses, tax staff have so far no longer applied for forgiveness.

This is because many of them want to see if the same clients can benefit from the new provisions in the Covid Legal Aid Act, including extending the retention credit for employees.

More about smart tax planning:
How unemployment could lead to a surprising tax bill in 2020
Tax season delays the start of the tax season until 12 February
Biden’s stimulus proposal increases these tax credits for families

These characteristics can affect the tax planning image for small businesses.

“I still know none of my clients have applied for forgiveness,” said Adam Markowitz, enrolled agent and vice president at Howard L Markowitz PA CPA in Leesburg, Florida.

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

Before approaching a bank for a second round of financing, small businesses need to make sure they are ready to present documentation – including their profit and loss statements and payroll data.

They should also engage a taxpayer to look after them through the process, ensure that they are eligible for more financing and to determine if they can benefit from the most important tax credits for employers.

Tax staff and small businesses have also spoken positively about their experience with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Maryland, is hoping to make $ 1 million in revenue by 2020, outsourcing his pickup in the summer to help put an end to it.

Together with his accountant and Sandy Spring Bank, a local money lender, he secured a PPP loan of about $ 39,000.

His CPA helped him prepare his payroll documents, and she will likely help him obtain a second round of PPP funding.

“At this point, I can not be the only business owner who looks like that,” Muzzatti said.

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