Ambassador Event: ‘Maximizing Your PPP Loan’
Through May 31, small businesses can again apply for a Paycheck Protection Program loan administered by the Small Business Administration.
No sector has been more impacted by the effects of COVID-19 than small business, which is the backbone of Arizona’s economy. For context, the nearly 600,000 small businesses across the state make up 99.4% of all businesses, employ 1.1 million people — 44% of the state’s workforce — and most main street operations have an average capital runway of just 27 days.
As of January 31, 2021, and factoring all three rounds of PPP funding, our analysis of SBA data shows more than 70% of eligible Arizona small businesses received funding through the program totaling 96,043 loans and $9.3 billion.
“While these PPP figures are encouraging, we won’t be satisfied until every single eligible small business in need can participate in the program,” said GPEC COO Sharon Hwang.
Amber Cordoba, the Prestamos CDFI director of business education and consulting services, joined our recent Ambassador Event to answer questions about eligibility, the application process and loan forgiveness.
Can I get a first loan?
Yes. Businesses that did not receive PPP during a previous round are eligible to receive one for the first time, if they meet requirements.
Can I get a second loan?
Yes, businesses who already received a loan are still eligible. Additionally, forgiveness on the first loan is not required to receive a second. You do not have to use the same lender for the second loan as you did the first.
Am I eligible?
Here are the basic eligibility requirements:
- The business is for-profit, 501(c)(3) or 501(c)(6)
- Employees have principal residence in United States
- For businesses receiving a first loan, they must employ no more than 500 full-time employees. For businesses applying for a second loan, the maximum number of full-time employees is 300.
- You pay W2 wages or have self-employment income
Here are the eligibility requirements for those applying for a second draw:
- Must meet above requirements
- Must have been operational on Feb. 15, 2020, though the business does not have to have been fully operation.
- Borrower must demonstrate a 25% reduction in gross receipts in at least one quarter of 2020 compared to the same quarter of 2019. If you were not in operation in 2019, you can use the first quarter of 2020 and compare it to the remaining three quarters of the year.
How can I use the funds?
- At least 60% of the loan must be used toward W2 wages, owner compensation replacement, group health and retirement, and/or state unemployment taxes.
- Up to 40% can go toward other eligible expenses including rent, utilities, interest, PPE and computing.
So, all of it is forgivable?
- Yes, as long as you meet those requirements above and maintain the equivalent number of full-time employees. You also must follow the documentation steps required by the SBA to officially request that your loan be transitioned to a grant.
- If you do not meet the requirements, it is a five-year loan at a 1% interest rate.
How do I determine my PPP amount?
There are a few different avenues to determine the size of the loan your business is eligible for.
- For companies with W2 employees: Take the W2 wages that you paid for the year, including wages, salaries, tips, bonuses, sick time, PTO, company paid-for health or retirement costs and any state unemployment costs. Add those together to get a lump sum of the total payroll expenses, then divide that by 12 for monthly payroll cost. Multiply this number by 2.5. This is the amount you’re eligible for.
- If you are in food or accommodations and this is the second loan, you can multiply by 3.5 instead of 2.5.
- Self-employed: Look at the Schedule C form and find Line 31 for net income. Take that number, divide by 12 and multiply it by 2.5.
- If you have W2 wages and self-employment, add your total wages to line 31 before dividing by 12 and multiplying by 2.5
- 1065 Partnership: On the K1 tax form, find Line 14A. Add this line for each partner and multiple by 0.9235. Divide that by 12 and then multiply by 2.5. The application will cover each partner.
- If you are in food or accommodations and this is the second draw, you can multiply by 3.5 instead of 2.5.
Is the PPP loan taxable?
Do not count PPP funds as any kind of income.
“It’s a forgivable loan, but you can look at it as a grant. This is a balance sheet item and I would recommend working with your accountant to figure out how to do the appropriate record-keeping,” Cordoba said.
If used correctly, these PPP loans are 100% forgivable and can help businesses in Arizona and around the country recover.
“Really, this program is about keeping things as they were, continuing to pay your existing employees or bringing on new staff,” Cordoba said. “Creating new jobs and new opportunities.”