It's Inauguration Day - So I Am Talking About PPP Loans

I really want to talk about the inauguration, actually. But I am still letting that sink in. And one thing that was made very clear to me today was the thought "What and I going to do, EVERY DAMN DAY, to try to make the world better and to heal this country?" So I guess that means it's time to talk about PPP loans.

Honestly, I was under such trauma from these back in April I was hoping I would never have to think about them again. Rushed applications for a new program that no one understood. Portals that were overwhelmed and shut down (sometimes in the middle of an application), a program that ran out of money and got replenished but provided a lot of stress, harried bankers, places who should not have taken the loans (I am looking at you, Ruth Chris Steak House) and gave it back, non-profit boards who did not understand the program and were suspicious of it, a worry about debt, a confusion over who was eligible, unclear forgiveness terms, changing documentation — it was a veritable cavalcade of enjoyment for those of us working in non-profit finance. I joked I had acquired a master's degree in PPP, and still felt traumatized even in August when I heard the term. Yet at the same time it was an incredibly successful program which, for many places, literally saved our bacon.

So then it showed up again on December 27-28 in the Consolidated Appropriations Act of 2021, and for the past week, I have been neck-deep in PPP Loans, Round 2 (Electric Boogaloo). I've applied now for 7 different loans at 4 different banks and feel like I have a grasp on this. Please note that, though this is an SBA loan and some of their requirements are not clear even in a 5,239 page document, the applications must be made through the bank, and the banks seem to be taking it upon themselves to ask for a lot more documentation than before. 

I just spent some time answering questions for someone, and thought this might help those of you who have not applied for PPP Round 2 yet. In some ways, we have learned a lot from Round 1; in other ways, Rounds 2 is more difficult (yay!):

What is PPP Round 2?

Another PPP loan program. Just like before, it's a forgivable loan designed to continue payroll, basically on the same terms as before. But apply soon — it's unclear how long funding will last, and in any case, the program is only open for application through March 31.

How much can you get? 

Still 2.5 months average payroll costs. You get this by choosing EITHER 2019 or 2020 gross payroll (exclusive of FICA match), you get to choose what is better for you. Round 1 went through so fast you ended up setting a smaller time period of pre-pandemic payroll, but now they seem to want  full year. Every bank I have applied through has required documentation of this payroll, either with payroll reports, W3s, or both. See more on "personnel costs" below.

What can you use it for?

60% must be used for payroll. The rest can be used for rent/mortgage, utilities (including phone), PPE for employees, covered operations, covered suppliers (different from the former, basically no new contracts), property damage from the summer insurrections (but not the last couple of weeks), and a very vague "Other." At the banks that have automatic portals, I have had to put down percentages for each of these items; I don't know how closely they will hold me to that, but expect that they will not.

What are "personnel costs"?

Same as before. Gross payroll (though you have to disqualify wages over 100K per person, which is still true in this version but not as clear.) Employee paid optional benefits — health insurance, but also expanded to vision, dental, and life insurance. Employer-paid retirement plan contributions; be careful with this one, some banks are saying the costs need to show up as "pension costs" on your 990 to be valid (never mind that 401K is not defined as a "pension," but whatever.) Some banks have allowed me to choose either retirement costs OR state UI, and I am not sure why the dichotomy. I did a spreadsheet that added all these together for a month so I could calculate 2.5x monthly (full) payroll costs. You will need documentation of these costs for the comparison payroll year; for example, if 2019 is your base payroll year, you will need documentation of health insurance bills for that year. There seems to be a *little* flexibility with employee counts; for example if you had 17 employees but only 12 at year-end, you seem to be able to count 12.

Are there new eligibility changes?

Yes. PPP Round 1 was for companies of 500 people or under; Round 2 is for 300 or fewer employees. You also need to show at least a 25% decrees in gross income (yes, this includes contributions but some income exemptions appear to apply, such as the PPP funds given last year and capital funds) from a quarter in 2020 compared to the same quarter in 2019. In every bank I have applied through, I have had to provide documentation of the decrease (either comparative P&Ls or bank statements), and at one bank the report had to be signed off on by the CEO. If you don't have P&Ls (why not??), one bank has suggested you can use bank statements to demonstrate the difference.

What if I don't have a 25% reduction in any quarter, or in the year as a whole?

Then you probably don't need the loan and can't get it.

Do you need to use the same bank as you did before?

I was originally told you did, but this does not seem to hold up. It may make it a lot easier though, since you need your PPP Round 1 loan number and amount. A friendly banker relationship will also help you out.

Do you have to have applied for/received forgiveness for PPP Round 1 to apply for Round 2?

No, but you need to have expended the funds. In fact, it may be that everyone should have listened to me and waited/should still be waiting to apply for forgiveness, because one banker told me that, of the 2,000+ applications they had seen come in, the ones that seemed to be getting stuck in the process with the SBA were the ones that were undergoing the forgiveness process — perhaps a glitch in the system? (imagine that). Just wait. The simplified forgiveness form will be available soon and you still have months to do it.

How long are the funds for?

They are based on 2.5 months average payroll. The period you spend the funds in is a minimum of 8 weeks and a maximum of 24, but when you apply for forgiveness, you can tie the period to the time you used it. For example, if you spent the funds in 12 weeks, you can set that. (In Round 1 you originally had 8 weeks and it expanded to 24; forgiveness applications would often only let you chose 8 OR 24 weeks forgiveness, which causes problems with ERCs as discussed later).

What else do you need for the application?

As well as the items discussed above, you will need your NAICS code, which not a lot of us think of (we are more often used to NTEE codes). You will need the year founded (and likely the month and day). You will need to have a "Beneficiary Owner," which for a non-profit will likely be the ED or board chair, and you'll need their SS# and address and such. I also needed a slew of documentation; I discussed most of the reports, etc. above, but I also needed to upload the last tax forms, the business license (if there was one), the Articles of Incorporation, and the Beneficiary Owner/signer's ID.

Are there ways that you are not eligible for the loan?

If you did not take PPP Round 1, you cannot do PPP Round 2. (In theory, you can still apply for Round 1, but I would bet you would run into some challenges.) You cannot get a Shuttered Venues act and a PPP Round 2 loan, and it is unclear if applying for PPP Round 2 disqualifies you from even applying for Shuttered Venues. Most 501c5s and c6s are still not eligible, though it has been expanded to a few.

I'm sure I have forgotten a few exciting elements so am happy to answer any questions! And obviously this is just my experience, but since I've done several of these now I have a pretty good sense of how they are panning out. And I still think, despite the issues with the program, that it is incredibly helpful for the non-profits I work for.

Now, on to ERCs (Employee Retention Credits), which NO ONE understands yet but are both retroactive to 2020 and moving forward into 2021 and could be HUGE! I'll let you know as I suss those out.