7 March 2021

When Congress passed the CARES Act in March of 2020, the Act included funds to target small businesses through the Paycheck Protection Program (“PPP”). As we all know by now, the timing of the roll-out turned out to be disastrous, where the funds dried up in record speed and large corporations lined their bank accounts. Many small businesses were left out in the cold, with the exception of a small percentage of small to mid sized businesses who, more often than not, worked with their accountants to secure funding. Without the necessary funding, many business owners were forced to lay off their employees without obtaining PPP funds.

We are now on our third “reload” of the PPP, and it is as competitive as ever to get access to these funds. The application is not only open to first draw businesses, but previously funded PPP applicants can apply for a second draw.

Yet for some reason, many business owners I talk to think there is no point in applying, and they wouldn’t even qualify since they don’t have payroll.

Who can apply for the PPP?

There has been a major misconception about who can apply for the PPP. Many of our clients were under the impression that you had to have W2 payroll to receive any funds from the PPP. I cannot stress this enough -- You do not necessarily need W2 employees to apply for the PPP. Independent contractors, sole proprietors, and partnerships can all apply based on their 2019 income straight from their taxes. For a lot of these people in this category, the income you make from your business or “side gig” is a significant portion of your household income. For this reason, you can consider yourself an employee based on that income figure. I repeat -- you do not necessarily need any employees (besides yourself) to receive funding from the PPP.

When should I apply?

If you had the ability -- yesterday. The application process has become increasingly competitive since the SBA has opened up the most recent PPP funds to businesses who have already received and spent earlier rounds of PPP funding. The SBA has tried to slow the process a bit to prevent the funds from drying up within days, but believe me when I say there is a long line of businesses who are trying to get their application submitted. If you have not already, I would highly recommend reaching out to your accountant to help compile the necessary documents to apply. You do not want to miss out on this lifeline.

How much money will I receive?

The SBA has outlined a series of calculations to help find this number, but they all get you to the same spot -- 2.5x monthly payroll costs. For a lot of businesses, this is a pretty straightforward calculation. However, the SBA has some rules for this figure. In fact, the SBA gives you an 8 page document to calculate 2.5x your monthly payroll costs

The first restriction that seems to come into play the most -- the SBA caps annual payroll costs at $100,000/employee (or $20,833.33 in forgivable PPP funds). Whether this is the salary of a W2 employee, or your own income on your schedule C, the SBA makes sure you cannot use more than $100,000 for any one person in the calculation.

The SBA also has a cap on the total PPP loan amount of $10 million for the PPP1 and $2 million for the recent PPP2.

How soon will I have to pay this back?

As you have probably heard, if you use the PPP funds correctly -- the entire amount of the loan will be forgiven. This is a home run for struggling businesses; however, you have to be careful about using the funds appropriately.

The PPP was created to protect paychecks -- it’s in the name. The ultimate goal for the PPP is to keep employees working and off of unemployment benefits. Therefore, if you want your loan forgiven, you have to keep your employees working.

Now, for those independent contractors, sole proprietors, and partnerships that I mentioned earlier (who have no other employees besides themselves), this will be a pretty easy task to accomplish. However, if you have additional employees, you cannot perform any layoffs if you are looking for complete forgiveness on the loan -- and why wouldn’t you be looking for complete forgiveness. Don’t leave free money on the table.

The SBA gives you a 24 week window to use the funds. So if you keep your workforce (yourself included), you should have no problem spending 2.5 months of payroll in 24 weeks. However, the SBA even gives you some flexibility on spending. If you cannot spend the entire PPP loan on payroll costs in 24 weeks, the SBA will allow you to spend 40% of the loan amount on qualifying expenses. These qualifying expenses include:

• Mortgage Interest Payments
• Rent/Lease Payments
• Utilities

You can spend up to 40% on those qualifying expenses, but at least 60% must be on payroll costs.

What if the PPP isn’t enough to save my business?

This has been an unfortunate question that we have had to field throughout this pandemic. You have spent so much time building your business, and your revenue can get wiped out in a year. However, with proper planning and the right team, you can make it through stronger than ever.

There are countless other stimulus programs and grants that have helped keep businesses afloat during this pandemic. Depending on the state your business is located and the sector you operate in, there are grant options available to help cover expenses. At GMAC, we were recently able to help some clients get $75,000 in grant money from a state agency that has re-directed $700 million of CARES Act money. These opportunities are out there if you have the right people searching for you.

We have also helped our clients get “lean” in 2020. When revenue started shrinking due to the pandemic, we quickly helped our clients realize what was truly important to keep their businesses afloat. Business owners have been able to do “more with less” in 2020, and have set themselves up for bigger margins moving forward with this framework. Not to mention, they will be ready for anything coming down the pipeline in the future.

Whatever your plans may be in 2021 for your business, you need to make sure you are giving yourself the best opportunity to succeed. If you aren’t sure if you will qualify for PPP funds, you need to reach out to your accountant immediately. This program exists to help small businesses survive -- don’t let it pass you by.