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Small Business

These entrepreneurs want a second PPP loan. What you should know if you are asking for more money

For Andrea Herrera, founder of Amazing Edibles Catering in Chicago, the pandemic has tested her ability to adapt on the fly amid declining income.

Since last March, the business has grown from catering for weddings and corporate events to providing meals to first responders and home meal delivery services.

Herrera also opened a new business, Boxperience, a gourmet snack box delivery service.

Creativity aside, its businesses continue to be hit hard by the pandemic. Herrera laid off around 80% of its staff last March as customers canceled events and stay-at-home orders began to take effect.

A patchwork of funding sources, including state and local grants and a forgivable loan of $ 144,000 under the Paycheck Protection Program has kept her afloat so far.

Herrera, like many other small business owners, is counting on a second P3 loan to get him through the spring.

“Hopefully that will take us through May,” she said, “and in Chicago, with the vaccines, things will reopen and we will have events with 50 to 100 people.”

The US Small Business Administration reopened its forgivable loan program on Jan.11 after Congress authorized up to $ 284 billion under the Covid relief law that came into effect in late 2020.

Most second-time borrowers can take out a maximum loan amount of 2.5 times their average monthly salary costs for 2019 or 2020, up to $ 2 million.

Businesses in the accommodation and food services industries – like Herrera – can borrow up to 3.5 times their average monthly wage costs for 2019 or 2020. These businesses are also subject to a cap of $ 2 million.

The question of whether 3 and a half months of payroll will be enough to bring catering and hospitality companies through the deployment of the vaccine is open. But companies that desperately need it will likely want to apply.

“The appetite may be a little stronger this time around, now that many business owners know what to expect,” said Nicole Davis, CPA and founder of Butler-Davis in Conyers, Ga. .

“There are more hurdles to jump this time around to get the loan.”

Stricter standards

The SBA has set three basic standards that second-time borrowers must meet in order to apply for a forgivable loan.

First, they must have already received a first-draw PPP loan and have used the full amount of the funding – or will use it – for the authorized purposes. Second, these companies cannot have more than 300 employees.

Finally, they must show that they had a reduction of at least 25% in gross revenue in a quarter between 2019 and 2020.

What small businesses may not know is that banks can have their own expectations when it comes to asking for more money.

For example, banks may require proof that your business has been affected.

“You never know what the bank will ask for,” said Campion J. Ellis, CPA and owner of CJE Associates in Indianapolis.

“If you’re someone who works in QuickBooks, file your quarterly income statements compared to the previous year period,” he said.

There is no second income. I see this second cycle of PPP as how I support my family and this business.
Nick muzzatti
owner of Snap Entertainment

In addition, some lenders are also pushing their clients to get their first round of PPP loans canceled before allowing them to apply for a second round of financing – even if the SBA does not require it, tax professionals have said. .

While PPP loans are generally forgivable if borrowers spend at least 60% of the funding on salary expenses, tax practitioners have so far refused to ask for a rebate.

That’s because many of them want to see if those same customers can benefit from the new provisions of the end-of-year Covid Relief Act, including extending employee retention credit.

Learn more about smart tax planning:
How being unemployed in 2020 could lead to a surprise tax bill
IRS postpones start of tax season to February 12
Biden’s stimulus proposal increases those tax credits for families

These characteristics could affect the image of tax planning for small businesses.

“I know none of my clients have asked for forgiveness yet,” said Adam Markowitz, enrolled agent and vice president of Howard L Markowitz PA CPA in Leesburg, Florida.

“The web of problems that are being created here because the banks are desperate is bad,” he said. “It’s bad for the consumer.”

Benefits of having a team

Before contacting the bank for a second round of funding, small businesses should make sure they are prepared to provide documentation, including their P&L statements and payroll data.

They should also involve a tax expert to guide them through the process, ensure they are eligible for additional funding, and determine if they could benefit from major employer tax credits.

Tax professionals and small businesses also spoke positively about their experience working with local lenders.

Nick Muzzatti, owner of Snap Entertainment in College Park, Md., Went from hoping to hit $ 1 million in revenue in 2020 to outsourcing his box truck that summer to help make ends meet. .

He worked with his accountant and Sandy Spring Bank, a local lender, to secure a PPP loan of approximately $ 39,000.

His CPA helped him prepare his payroll documents, and she will likely be instrumental in helping him secure a second round of P3 funding.

“At this point, I can’t be the only business owner to see it like this,” Muzzatti said.

“There is no second income,” he said. “I see this second cycle of PPP as the way I support my family and this business.”

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