The SBA has released their PPP guidance around the new stimulus legislation passed on December 27th, 2020. This guidance includes interpretations of changes to forgiveness as well as interpretations of the second draw loans. We reviewed the SBA’s documents and found the following highlights most interesting to small business owners.
Clarifications Released by the SBA
Definition of Gross Receipts
To qualify for a second draw of the PPP, a business must prove it had a decrease in “gross receipts” of 25% year-over-year for any quarter of 2020. The SBA clarified this definition as:
“…all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
This means you can use accrual or cash basis revenue, just so long as it is consistent with your business’ accounting method. If you’re a CFOshare client, you will be able to use your normal business financials to determine your eligibility for PPP round 2 (in fact, a CFOshare employee will be reaching out to you to notify you that you are eligible.)
Definition of Seasonal Businesses
The act passed by congress defined a seasonal business as any business that has a 6-month period where gross receipts are 33.33% or less compared to the other 6 month period. What wasn’t clear was whether that period needed to be consecutive or fully contained within one year. The SBA’s guidance clarifies that you can use any 6 months, not necessarily consecutive 6 months; and that the comparison must be made within the same calendar year.
Anyone applying for a PPP second draw will need to make certain certifications. These are essentially identical to the certifications of the first draw with the following additions:
- The applicant realized a reduction in gross receipts in excess of 25%
- The applicant used their first round PPP funds only for eligible expenses
- The business is not owned or operated in, from, or by China
- The applicant is not a foreign agent
- The applicant does not engage primarily in political lobbying
Keep in mind you still need to certify that economic uncertainty from Covid-19 makes this loan necessary; however, since all second draw loans are $2M or less, you will automatically qualify for safe harbor provisions relieving you of the need to prove this necessity.
Clarifications we are still waiting on
The SBA only had 10 days to release these documents, so they didn’t answer every single question. Here’s some open questions we have at CFOshare:
- What defines a quarter? Can applicants use any consecutive 3 month period or just calendar periods? What if the fiscal periods are different from calendar periods?
- What constitutes a forgivable supplier cost that is necessary to business operations? Raw materials and wholesale product seem clear examples, but what about office printer toner or computers?