Next Round of PPP Loans - Info Inside - Updated 1/8/21

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show a loss of 30% of revenue in at least one quarter matched up to the same quarter in 2019.

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This is a really shitty metric if you're in a startup or if your book of business changed during the year.

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Eligible Entities Have a Second Chance to Receive a PPP Loan

Many borrowers have requested a second round of PPP loans, and many potential borrowers who were unable to receive a PPP loan during the first round would like to have access to a PPP loan. The proposed bill allows new and old borrowers to receive a PPP loan if they meet the requirements of an “eligible entity.”

An “eligible entity” will need to satisfy the “Necessity Test” that is discussed in my blog post dated May 4, 2020 “Was Your PPP Loan ‘Necessary’? If Not, There Could Be Horrific Repercussions” as of the time of applying for this new second loan. This test, which is based upon whether the loan is “necessary to support the on-going operations of the applicant” will be hard to meet by businesses that have survived one or two hard quarters but are now making ends meet while waiting for the vaccines to clear our economy up. The test will clearly not be passed by a high percentage of PPP borrowers who will otherwise qualify, and will present a very important issue to be carefully addressed with the borrower’s CPA, financial and legal advisors. While the SBA has announced that it will not question the necessity issue for those who have aggregate borrowings not exceeding $2 million, other agencies, or even whistleblowers, may, and the fact that a second loan has been received will not be kept confidential.

Assuming that the necessity test will be met, the next question is whether the PPP borrower is an “eligible entity” which the bill defines as a Schedule C taxpayer (but apparently not a Schedule E landlord or a Schedule F farmer), an LLC or other entity treated as an S corporation or partnership that meets the following requirements:

The borrower must demonstrate that there was a 30% reduction from the gross receipts of the entity during the same quarter in 2019.
For the purposes of this 30% rule, gross receipts will include all revenues from the normal operation of the business before subtraction of expenses but will not include amounts borrowed, including amounts received for PPP loans.
The borrower must employ no more than 300 employees, or meet an alternative size standard.
The proposed Rubio-Collins bill (“HEALS Act”) that did not pass, would have required a 50 percent reduction from gross receipts, so this change to 30 percent in the “Emergency Coronavirus Relief Act of 2020" will allow PPP loans to reach a greater number of potential borrowers.

For purposes of the above 30% reduction in gross receipts test, borrowers who were not in business during the first, second, or third quarter of 2019 (January 1 - September 30), but were in business during the fourth quarter of 2019 (October 1 - December 31), can compare the first, second, or third quarter of 2020 (January 1 - September 30) to the fourth quarter of 2019.

If the entity was not in business during 2019 but was in business by February 15, 2020, then such borrower can compare their gross receipts during the second or third quarter of 2020 (April 1 - June 30) to the first quarter of 2020 (January 1 - March 30) to see if they qualify.

Please contact us with questions as they may arrive and we will do our best to get you an answer. Until then, standby for future updates.

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