As I am sure you have heard the Paycheck Protection Program (PPP) is back and will kickoff at most financial institutions this week. You can check out additional details about that legislation here.
In this blog post, we will provide clarity for borrowers considering the second draw of PPP loan. Note if you did not receive a PPP loan previously you will NOT have to meet the following parameters.
To qualify for it, you must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. You may use your annual revenue or revenue by calendar quarter.
For example, your business wants to use the second quarter (Q2) of 2019 where you recorded $100,000 in gross revenue, you are eligible if your Q2 2020 gross revenue was $75,000 or less.
The big question now is.. what exactly counts as revenue and what doesn’t?
Per the IFR, “gross receipts include all revenue received or accrued (in accordance with the entity’s accounting method regardless of form or source). This includes revenue from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.”
You would not include any previously received EIDL loans, EIDL grants, PPP, or unemployment funds received in your gross revenue.
Calculating quarterly revenues should be relatively easy assuming you’re using an accounting system such as QuickBooks Desktop or QuickBooks Online.
To calculate using both programs, follow these steps:
Choose Reports
⇒Company & Financial
⇒Profit & Loss Standard command
That will generate a P&L financial statement that shows income and expenses.
To calculate the quarterly percentage change:
Click the Customize Report button at the top of the report window
Open the Modify Report dialog box
Check the Previous Period and % Change boxes
Select the date (1/1/2020-12/31/2020)
Indicate you are either a cash or accrual basis taxpayer
Select display columns by Quarter
Click OK to close the Modify Report dialog box
Then compare quarterly revenues. If any calendar quarter has a decline in gross revenue of 25% or more you would qualify for the second draw of the PPP loan.
If you did not take the first PPP loan then you do not have to show a decline in revenue, but you do have to make a certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
According to the SBA guidance, “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification. Lenders may rely on a borrower’s certification regarding the necessity of the loan request.”
For guidance on your specific situation, consult with us. Also follow our blog to keep an eye out for additional updates.
The second draw PPP loan application form is available here.
Click this for the actual new Interim Final Rule.