Did you receive a large grant in the early years of your startup – perhaps a NIST, OEDIT or DOD grant in 2019? If so, your startup business may be in for a nice PPP second draw.
What is the PPP second draw?
2020 was a bumpy ride all around, and for small businesses those bumps came with real costs and pitfalls. Congress looked to help small businesses with the first Paycheck Protection Program (PPP) draws, and with the passage of the second stimulus package on December 27th, a second round of PPP draws are on the way. On the surface, eligibility seems simple: have a 25% year-over-year reduction of gross receipt in any quarter of 2020.
Does grant income count as gross receipts?
Most grants will qualify as gross receipts. The definition of “gross receipts” can be confusing, especially for companies that relied on grant funding in 2019 and 2020. Broadly, gross receipts are defined as:
All revenue, received or accrued from any source; receipts exclude capital gains and losses, taxes excised (such as sales taxes), transactions between a business and its affiliates (such as subsidiaries), or reimbursable collections (such as deposits paid with a travel agent). Source: https://www.law.cornell.edu/cfr/text/13/121.104
Grants income counts as gross receipts. That means a company that received a large development grant in 2019 will likely have a qualifying drop in gross receipts (unless they were fabulously successful in 2020.)
How do businesses with grant income qualify for the PPP?
So, what does that mean for your business? Maybe you awarded a large sum of grant money in 2019 to complete your MVP. Maybe your state’s economic development authority granted you a cash infusion to help get your product to market. Depending on the timing of your grant, there’s a good chance that 2019grant money qualified your business for a second PPP draw.
Applying for, documenting, and claiming forgiveness for the PPP is a difficult process. If you’re looking for assistance in this process, get in touch with a CFOshare associate to explore a relationship with us.