PPP Update: Guidance on Calculations
Please note: This blog is current to the date of its publication, Thursday, Jan. 21. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.
Recently, the Small Business Administration (SBA) and the Department of the Treasury released additional guidance clarifying certain Paycheck Protection Program (PPP) calculations and documentation requirements for First Draw and Second Draw PPP Loans.
According to these documents, Borrowers and Lenders can rely on this guidance as the SBA’s interpretation of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (Economic Aid Act) and the PPP Interim Final Rules. Some of the highlights include:
- Methodology to calculate First Draw and Second Draw PPP maximum loan amounts
- Supporting documentation required for eligible entities, including:
- Self-employed individuals with or without employees
- Self-employed farmers and ranchers
- S and C corporations
- Nonprofit organizations, religious institutions, veterans organizations and tribal businesses
- Acceptable documentation to substantiate payroll costs used to calculate the applied-for First and/or Second Draw PPP Loan
- Determination of the reference period for eligible organizations who were in business as of Feb. 15, 2020, but not as of Feb. 15, 2019, to compute the First and/or Second Draw PPP Loan amount
- Listing of pre-tax employee contributions for fringe benefits that may have been excluded from IRS Form 941 but are still considered in calculating employee gross pay
Second Draw PPP Loan-Specific Guidance
- Clarification on “gross receipts” for the purpose of determining eligibility for a Second Draw PPP Loan for nonprofit organizations and for-profit businesses
- Determination of which reference periods can be used to determine the gross receipts reduction based on how long the Applicant has been in business
- Primary sets of documentation Applicants can provide to substantiate the certification of a gross receipts reduction of at least 25%
- References for entities that use annual income tax returns to demonstrate the gross receipts reduction of at least 25%
- Clarification that entities that use a fiscal year to file taxes may document a reduction in gross receipts with income tax returns only if their fiscal year has a start date of Feb. 1, March 1 or April 1 and contains all of the second, third and fourth quarters of the calendar year
- Clarification that payroll costs from the precise 12-month period prior to the First Draw PPP Loan cannot be used to compute the Second Draw PPP Loan amount, which must be calculated using calendar year 2019 or calendar year 2020 payroll costs
While the PPP calculation process is multi-faceted, the experts at SST are equipped to help guide your organization through its specific financial scenarios. Contact us today to learn more about how this latest guidance may impact you.
Special thanks to SST Partner Emily Cook for providing the content for this post.