PPP Round 2 Hype is Frothy

I loathe providing incomplete and/ or speculative information but sometimes we just must do it. The hype around this second round of PPP is loud and the not-knowing just adds to it.

This “second-draw” of forgivable loans is aimed at “harder hit” small businesses.

FACT:  The bill requires the SBA to write regulations on the implementation of the second round of PPP no later than 10 days after the bill is signed into law.

GUESS WORK:  The bill was signed by President Trump on 12/27/2020 – so 10 calendar days is… January 6, 2020 – did they mean 10 business days? I don’t know… if they did that is January 11, 2020.

GUESS WORK:  Banks will then have to digest this information much in the way they did the first time, presumably they will be a little quicker this time around but anticipate a bit of ramp up time – remember, some banks didn’t even get their programs running for the first round.

FACT:  The program will then run until March 31, 2021 or funds are exhausted.

FACT:  Accepting a PPP loan in the first go-round will not be an automatic disqualifier.

FACTS:  How much is funding for? Capped at $2 million and up to:

  • 2½ times the borrowers average monthly payroll costs.
  • Businesses in the accommodation and food services industries, such as restaurants and hotels, may receive up to 3½ times their average monthly payroll cost.

FACTS:  Criteria as we know it – the borrower must:

  • Have 300 or fewer employees.
  • Show a loss of at least 25% of gross receipts in any quarter during 2020 when compared to the same quarter in 2019.
    • This is the million-dollar question… well, up to 2 million really – how is this going to be measured and what additional qualifiers are going to be put in place? Remember, congress passes laws and stuff, and then the treasury must interpret and gets to put their spin on it.

GUESS WORK:  Revenue?? How will this be defined? Measured? Reviewed? Don’t know – we need to wait for the Treasury to put out the rules of the game – but here are our best guesses:

  • Will be on the same basis as your tax returns. Cash or Accrual.
  • But … you argue that original Bill says “incurred or paid” – well, you’re right, so maybe we can use either – but presumably we’ll have to pick one and be consistent.
  • We assume “they” mean Gross / top-line sales; the next most-likely option is “net-sales” which is gross sales less returns and allowances; the outlier, with 100 to 1 odds (or worse) is going with net-income (what’s left at the bottom).

For reviewing your quarterly revenue results you can run a simple comparative profit and loss report out of QuickBooks – instead of displaying by “total” select “quarter” and in CUSTOMIZE click on the “$ change” and “% change options” – this way the computer will do the math – it’s not our strong suit.

GUESS WORK:  It can’t be that simple.

  • Less than 300 employees – check!
  • Business is not organized in China – check!
  • Display 25% reduction of income (to be defined) by showing internal records??? – ahh, anyone know a good accountant? – check!

It can’t be that simple!

GUESS WORK:  How can they complicate this?

  • If you were down by 25% in Q1 or Q2 but then killed it in the second half and end 2020 close to/ even with/ better than 2019 can you still apply? Don’t know.
  • What if your business is open all year but it is highly seasonal, and you didn’t lose your high season but your shoulder seasons (which don’t matter) were off by > 25% – does that matter? Don’t know.
  • Do the quarters of revenue have to be more or less even? Do they have to be a certain % of annual revenue? Don’t know.
  • Will your first round PPP funding count as revenue? Don’t know.
    • If yes – In the period received or the period forgiven? Don’t know.
  • Will there be a catch-all clause about:
    • other funding options;
    • working-capital;
    • cash position;
    • reserves;
    • draws or distributions taken;
    • overall performance of the company;
    • crystal ball on future results?

Guess what? What? Don’t know, don’t know, don’t know.

EXAMPLE (with more questions than answers):  Say your business does $400,000 of gross income per year and you are a landscaper, so if it doesn’t snow in Q1 you don’t have income – guess what, it didn’t snow in 2020 (at least not on Cape Cod) so your Q1 income was essentially non-existent. You did $20,000 in 2019 Q1 and only $10,000 in 2020 Q1 – well that is a 50% reduction for a quarter – but a very small % of your overall income – then Q2 was ok, down a little from 2019, but not bad, and Q3 and Q4 were good – so you end the 2020 year (from a gross revenue standpoint) +/- the same as 2019. And if you include the PPP funds received of $40,000 from the first round in Q2 you are actually up ~10% (as far as the top-line is concerned).

Do you qualify? Guess what… Don’t know.

We should soon, so as hard as it, please don’t speculate, instead cancel your New Year’s plan and work on your books and records. You could only stay out until 9 pm anyway! Being current and prepared is the best action you can take right now. I assure you that we are all over this and will be shouting from the mountain tops (well big hills anyway because we can’t leave the state) with any and all new information that helps drive us forward.

Some additional resources regarding Pandemic Relief
Relief for Small Business Owners
Relief for Individual Tax Payers 

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