PPP Loan Forgiveness and 2nd Draw Applications
Remember to apply through your 7a bank for forgiveness of your PPP loan. Contact your lender if you do not see the form to use to apply for the forgiveness; my bank sent me the form. The forgiveness forms 3508S or 3508Z are streamlined. I used the form per instructions from my bank. Be ready to forward copies of your bank statements and or other records to establish forgiveness based on use of the funds. For example, I received a PPP and had it forgiven. I had to send copies of the bank statements where the loan was deposited and where it was used for employee salary. Remember you can use the funds for things other than salary. The bank receives the application for forgiveness and forwards it to the SBA who has the final say so regarding forgiveness. I received a letter from the bank and SBA confirming the loan is forgiven. Keep your records. There are more details and more forms. Give me a call to discuss if you are not sure.
Do not forget to apply for forgiveness – it is not automatic.
Contact your lender regarding their rules about whether you need to get 1st draw forgiveness started before applying for the 2nd draw PPP. Following is an SBA notice directly from their website regarding the Second Draw PPP.
Notice: Paycheck Protection Program resumed January 11, 2021 at 9am ET
SBA, in consultation with the U.S. Treasury Department, reopened the Paycheck Protection Program (PPP) for First Draw PPP Loans the week of January 11, 2021. SBA began accepting applications for Second Draw PPP Loans on January 13, 2021.
At least $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.
The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan.
Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
Maximum loan amount and increased assistance for accommodation and food services businesses
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector (use NAICS 72 to confirm), the maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.
Who may qualify
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
o Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
o Has no more than 300 employees; and
o Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020
How and when to apply
You can apply for a Second Draw PPP Loan from January 13, 2021, until March 31, 2021. SBA is currently accepting Second Draw PPP loan applications from participating lenders. Lender Match can help connect you with a lender. You can also view all lenders near you on a map. All Second Draw PPP Loans will have the same terms regardless of lender or borrower.
If you wish to begin preparing your application, you can download the following PPP borrower application form to see the information that will be requested from you when you apply with a lender
Tax Treatment of PPP, SBA Economic Injury Disaster Loan “EIDL” Grant/Advance, SBA Loan
The PPP forgiveness granted by SBA is not taxable even though under normal conditions forgiveness of indebtedness is taxable. No 1099C Cancellation of Debt will be issued.
If the PPP is not forgiven, it’s a loan that gets repaid and a cancellation issue would not exist.
The expenses paid with the PPP are deductible.
The EIDL Advance/Grant is a grant and not taxable. The PPP forgiveness does not get reduced by the EIDL advance/grant.
The SBA loan gets repaid at a low rate of interest. SBA should have sent you a letter regarding loan terms and how to repay. This is a loan and there is no cancellation of debt issue or deductibility of expense issue here.
You should look at your P & L’s and Balance Sheets. The EIDL grant will appear on the P & L as other income, not taxable and your SBA Loans will appear on your Balance Sheets.