Paycheck Protection Program (PPP)
The Second PPP loan can be used to fund payroll costs, including benefits. To obtain said loan, there are important prerequisites that must be fulfilled for the second round of PPP funds to be fully forgiven. First, the employee and compensation levels must be maintained in the same manner as required for the first round of PPP loans. Second, the loan proceeds must be spent on payroll costs and other eligible expenses. And third, at least sixty percent of the proceeds must be spent on payroll costs.
Moreover, in order to be eligible for the second round of PPP funds, a borrower must have previously received a PPP loan and must have used the funds in accordance with authorized uses only.
The borrower can have no more than three hundred employees, and must demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. For loan requests of less than $150,000, proof of this 25% reduction in gross receipts is not necessary to apply for the loan. However, providing proof of said gross receipts will be necessary if you plan on applying for forgiveness.
What are Gross Receipts?
If your company is a for-profit business, gross receipts means all revenue received in accordance with the entity’s accounting method (for instance, it could be accrual or cash). Gross receipts, however, do not include taxes collected for and remitted to a taxing authority if included in gross or total income, such sales or other kings of taxes collected from customers.
In terms of documentation, there are three different kinds of documents that will suffice the burden of proof:
First, an Applicant may submit quarterly financial statements for the entity. If these financial statements are not audited, the Applicant must sign and date the first page and then initial all other pages to attest to their accuracy. If the financial statements do not specify the line showing gross receipts, the Applicant must annotate which line constitutes the gross receipts. The Applicant must demonstrate that gross receipts in any calendar quarter of 2020 were at least 25 percent lower than the same quarter in 2019.
Second, an Applicant may submit quarterly of monthly bank statements showing deposits for the relevant quarters. If it is not clear which deposits constitute gross receipts and which do not, then the Applicant must annotate which deposits do constitute gross receipts. The Applicant must demonstrate that gross receipts in any calendar quarter of 2020 were at least 25 percent lower than the same quarter in 2019.
Third, an Applicant can simply submit annual gross receipts in 2020 together with annual gross receipts in 2019. To do so, an Applicant can simply submit annual IRS income tax filings for the entirety of 2019 and 2020. A question arises about what must be done if an entity uses a fiscal year that differs from the calendar year to file taxes. In such a case, entities may document a reduction in gross receipts with income tax returns only if said fiscal year contains all of the second, third, and fourth quarters of the calendar year.