PPP Loans

4 Ways the New PPP Loans are Better Than Before

The economic stimulus bill that was recently passed by the House and Senate has been signed by the President. It contains several hundred pages of aid for small businesses. There will be more funds available for Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loan (EIDL) grants, among other aid to struggling businesses. Those loans will likely become available in early January 2021.

As a startup founder, you might be wondering, “What’s in it for me?

Well, it turns out, plenty, especially as it relates to the Paycheck Protection Program (PPP), which was a large part of this bill.

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It better targets startups and small businesses

With the first round of PPP funding, many super-small businesses, such as solopreneurs with no employees, found themselves pushed to the back of the line behind bigger businesses. Then the funds ran out, leaving those small businesses without any financial relief.

“Small business” can be defined as anything from a solopreneur working out of his or her home to a company with 500 employees in multiple locations. After the first round of PPP funding, people raised concern those smaller businesses weren’t being served when, in fact, they were struggling just as much as (if not more than) larger businesses.

This new bill has put new restrictions in place that mean these funds are much more likely to go to truly small businesses. Publicly traded companies can’t apply, and funds are set aside in this program for smaller businesses. Whether you have employees or not, you may qualify for PPP funding.

For the nearly 2.5 million solopreneurs—a giant 81% of all small businesses in the U.S.—who operate without employees, this is great news. If you’re one of them, get ready to apply for the PPP as soon as the gates open again.

Related: 5 Financing Sources for New Businesses

You may get a second PPP loan

While that first round of PPP loan funding certainly helped a lot of businesses, it didn’t stop many from shuttering. In September, Yelp reported that more than 163,000 U.S. businesses on Yelp had closed since the beginning of the pandemic.

The good news is that this bill includes the option to take out a second PPP loan, as long as the funds from the first one have been used or you have plans to use them. So, for those businesses that are on the brink of permanent closure, this could be the bailout they need to survive until better times.

To qualify for a second draw PPP loan, your business must have:

  • 300 or fewer employees and
  • Had at least a 25% reduction in gross receipts in one or more quarters of 2020 when compared to comparable quarters the year before (there are caveats for seasonal and newer businesses)

The maximum loan amount is $2 million.

You can request more money

Maybe you got PPP funds the first time but didn’t apply for the full amount you qualified for because you weren’t aware that you could have been eligible for more. Or maybe you returned the loan because business was picking up, but then it slowed down again.

One applies for PPP based on payroll costs, and some small business owners thought payroll meant their employees – but didn’t realize they could be considered an employee of their company. Or they didn’t understand how to calculate payroll as a sole proprietor or independent contractor. (Hint: use Schedule C net profits). So, they took less than they were eligible for.

If this applies to you, know that you may request more money from your first loan. And whether you are applying for more from your first loan or applying for the first time, these PPP loans are still forgivable as long as you use them for qualifying expenses.

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We will soon have a simplified forgiveness application

While many business owners were holding out the hope for automatic forgiveness, this is the next best thing, and it’s pretty close to automatic. The bill includes a forgiveness process that should be much easier if you applied for $150,000 or less, last time or this time.

The simplified form will require you to answer some basic questions about how many jobs the loan helped you retain (yours included), how much of the loan was spent on payroll and the total amount of the loan.

These forms are expected to be available in about a month, though if you’re impatient, you can check with your lender to see when it’s available or go ahead and apply for forgiveness through your lender using the SBA forgiveness application form 3508EZ or 3508S.

Just remember to keep good records in case you get audited. The SBA has the right to review forgiveness applications and examine expenses you paid for with loan proceeds, so keeping your PPP funds in a separate business bank account can make that easier.

Legislators seem to be hearing the cries of small businesses that felt underserved with the first round of loans in the CARES Act. While it’s not perfect, this may be your best opportunity to take advantage of the Paycheck Protection Program to get funds that may be forgiven and help you stay afloat through whatever’s coming next.

This article was updated on Dec. 28, 2020

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