On December 27, 2020, President Trump signed the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (aka “EAA”). Among many other things, the EAA created the “Second Draw PPP Loans Program,” (what we’re calling PPP 2.0) which gives you the chance to basically get the same PPP loan again.
Since then, the Treasury Department has released additional guidance providing clarification of this loan program, which I cover below. Many of the details and terms of the loan mirror the first round of PPP loans, hence the term PPP 2.0.
Who is Eligible?
PPP 2.0 is eligible for businesses, sole proprietors, and independent contractors who:
- Met the initial eligibility requirements and received the first PPP loan (although if you didn’t receive PPP 1.0, you may still be eligible).
- Has used or will use the first PPP loan proceeds for authorized expenses prior to receiving PPP 2.0 (you do not need to have completed the forgiveness of PPP 1.0).
- Has fewer than 300 employees.
- Suffered a 25% collections reduction in one of the following time periods:
- Q1 2020 compared to Q1 2019.
- Q2 2020 compared to Q2 2019 (this is where most doctors will qualify)
- 2020 compared to 2019 (comparing annual revenues). In the case of comparing annual revenues, the business must submit tax returns to verify the decline in revenue.
- *In addition, the applicants must believe they have a need for the money.
- **Most PFG clients’ collections were down 25% in Q2 2020 when compared to Q2 2019; please note that PPP 1.0, EIDL, HHS or other grants are not considered as part of revenue.
How much can I borrow?
The max loan amount is 2.5x your average monthly payroll costs. In general, the calculation for the amount you can borrow with this loan is the same as that of the first round of PPP loan. Our understanding is that applicants can also use 2020 average payroll costs (2019 payroll costs will be higher than 2020 for most doctors).
How do I apply?
The application process will be similar when compared to PPP 1.0. If possible, we recommend you apply with the same bank you used for PPP 1.0. You will need to do the following to apply:
- As always, work with your bank; the rubber meets the road with them.
- File Form 2483-SD (or lender’s equivalent)
- It is possible that if you apply with the same bank with the same amount as with PPP 1.0, no payroll documents will be needed (we’ll see on this).
- For loans greater than $150,000 you will need to provide proof of revenue declines at the time of application (your financial statements is what they’ll need)
- For loans less than $150k, you will need to provide proof of revenue decline at the time you apply for loan forgiveness.
- The documents you’ll need to substantiate the revenue loss include:
- Tax returns
- Bank statements
- Monthly financial statements
- You will need to make the same certifications you made when applying for the first round of PPP.
When can you apply?
As of today, the SBA lender portal was not accepting applications. Borrowers will have until March 31, 2021 to apply for the loan.
What are the conditions of loan forgiveness?
The SBA is using the same terms for loan forgiveness as with the first round of PPP loans. As mentioned, loans under $150,000 will need to provide proof of revenue decline, assuming this proof was not provided at the time of application.
The eligible costs for forgiveness (same as PPP 1.0) include:
- Covered mortgage interest (business loan interest)
- PPE or other Covid-required expenses.
To be eligible for full forgiveness, the borrower must use 60% or more of the funds on payroll-related expenses (same as with PPP 1.0).
How do I know if my revenue reduced by 25%?
All PFG clients have access to their financial statements through the secure NetClient portal. To know if you suffered a 25% reduction, do this:
- Pull your March 31, 2020 financials; compare YTD net collections to PYTD (Prior year to date) collections.
- Pull your June 30, 2020 financials.
- Subtract 3/31/20 YTD revenue to determine your revenue for Q2; do the same for 2019 (on the same page)
- Compare the Q2 revenue in 2020 with 2019.
- *If you need help finding your financials or doing this calculation, please let us know.
Can I use any 3-month time frame?
The IFR mentions specifically quarter-over-quarter comparison (Jan – Mar 2020 compared to Jan – Mar 2019); as such, we assume you cannot select any rolling three months. For example, most doctors would likely prefer to use March, April, and May 2020 to compare to the same in 2019; we do not believe this is allowed. However, most doctors who need the money will qualify using Q2 2020 compared to Q2 2019 (Apr – Jun).
What should you do now?
- Determine if you are eligible for PPP 2.0 by calculating your revenue reduction in Q2 2020 compared to Q2 2019 to see if there was a 25% reduction. For example, assume your revenue was $200k in Q2 2019, then fell to $140k in Q2 2020; here is the calculation: $200k – $140k = $60k; $60k / $200k = 30%. In this case, you would be eligible for PPP 2.0.
- Determine if you need the PPP 2.0 money.
- If you are eligible, believe you need the money, and want to participate, we recommend you reach out to your banker to start the conversation of how and when to apply.
Should you apply?
Many doctors have called us asking whether they should apply for PPP 2.0. Most doctors who are eligible will likely apply and take the money. We have no idea if there will be long-term ramifications from doing so. For example, will the government take the next 10 years to audit recipients to determine whether they really needed the money or not? We have no idea.
What I personally recommend is to always be honest in your dealings. I have yet to hear of someone who regretted, in the long run, being honest. This is your decision; we will support you no matter what you decide.
If you have questions or would like to discuss further, please reach out to your planning team. We are happy to help any way we can.