The most talked about program from the CARES Act was the PPP Loan program. Designed to provide instant cash inflows to struggling businesses to help cover the cost of payroll and other operating expenses. The first round was distributed so fast it ran out of money in only a few days, the second round last a few weeks, and in December a third round was released which fortunately is still funded.
We will run over a brief overview of this program and consider to have two parts. Part one is the CARES Act disbursements (1 and 2) and the second part is the CAA disbursements (part 3).
Part 1
To qualify for the PPP originally you needed to have wages in 2019. You took your monthly average, multiplied that by 2.5 and that was your loan, in a simple manner of speaking. You then had 8 weeks to pay that loan out in the form of wages, rent, and utilities, which was then changed to 24 weeks.
Assuming you were able to pay it all out, the loan would be forgiven and nothing was owed back to the SBA. The IRS then came out and released a statement that the forgiven loan would essentially become taxable as you would not be allowed to deduct the expenses paid with the loan proceeds.
There was no requirement to prove you had to receive the funds, it was simply a matter of applying. The catch with the PPP Loan was that you could not also take the Employee Retention Credit, and, if you received an EIDL advance, that advance would reduce how much of the loan was forgiven. In short, you shouldn't receive free money from both the PPP loan and EIDL. The CAA eliminated this part.
Part 2
In December 2020 the CAA released a second formal disbursement to help struggling businesses in the form an additional PPP loan. This time around however Congress added the wrinkle that not only did you have to be in business, you had to show a 25% drop in Gross Receipts either in total for 2020 v 2019, or in a single quarter. For most businesses, this was Q2, and they qualified, so they took a second round.
What did the CAA change?
The CAA had some massive changes to the PPP loan program. The first was that businesses could now qualify for, and receive the Employee Retention Credit if they also received a PPP loan. They simply had to identify what wages were used for the PPP Loan and what wages were used for the ERC. The second was that any business who did not take the initial Round 1 PPP Loan, could now apply for Round 1, use the funds, then apply for the CAA round 2. This means a business could receive the same PPP Loan twice in the space of a few months. Third, for a business to qualify for Round 2, they had to show a need in the form of a drop in Gross Receipts of 25% or more. To show this, the business would simply show their Gross Receipts (Profit and Loss statement income line for example) and show a Quarterly comparison of 2019 to 2020 or annual comparison. If there was a drop of 25% or more, they qualified. Lastly, to qualify for Round 2 you had to pay out wages for the period that covered February 15th 2020. If you paid wages on a monthly basis, for example, and paid out for the month of February, you qualified.
Change for Farmers
In the first round PPP Loan Farmers were left out in the cold, so to speak. They based PPP funding off Net Income, which most farmers simply didn't have. As a result, they did not get loans. With the CAA changes, farmers could now qualify based off GROSS RECEIPTS, instead of Net Income. Using the same average monthly receipts multiplied by 2.5 farmers were limited to $100K in gross receipts, for a max PPP Loan of $20,833. All they had to show was a Sch F with Gross Receipts, an application, and a bank account showing they existed February 15, 2020. This is a major help for small farmers and is often overlooked.
Schedule C Filers
Another area often overlooked is with Sch C businesses. If they had net income they qualify for the first round. If they can show a drop in revenue they qualify for round 2. Many small businesses assumed they don't qualify because they were not full time, or because maybe their spouse worked full time, or any number of reasons, but if they have a Sch C, they most likely qualify and it is worth talking with a banker about.
