If you have not heard about the PPP (Paycheck Protection Program), you are in for a treat. If you have heard about it but have not applied, you should consider doing so immediately. If you got one last year, look into the second draw loans for a second one this year. The standards are a bit different, but the benefits are substantially the same.
The PPP loan program came into being to help small (very broadly defined) businesses survive the pandemic shutdowns. The deadline for applications recently got extended to May 31, 2021. While it may get extended again, there is no guaranty of that, so you should act sooner rather than later.
The current standards for a first draw loan relevant to most attorneys are that you have 500 or fewer employees. If you are a sole proprietor, independent contractor, or an eligible self-employed person, you can apply for the loan whether or not you have employees.
If you want a second draw loan, you must have 300 or fewer employees, have used or will use the first draw loan prior to the expected date of the disbursal of the second draw loan, and used or will use the full amount of the first draw loan on qualified expenses. Additionally, you must show that for any quarter of 2020 your revenue fell by not less than 25 percent compared to the same quarter of 2019.
You can get 2.5 times your monthly payroll costs. This includes income payments to yourself if you are a sole proprietor.
The U.S. Small Business Administration (SBA) runs the program, but the loans come through banks and related institutions. You need to apply through a lender, not the SBA directly.
The loan draws interest at 1 percent per annum; the first payment is due ten months following the expiration of the loan. But you can apply for and receive forgiveness of all or part of the loan. The key things you have to know about forgiveness are that you need to apply for it separately, and you need to spend at least 60 percent of the amount forgiven on payroll expenses. Additionally, we are advised that the federal government and most states will not collect taxes on the forgiveness of indebtedness income that would otherwise be taxable but for this program.
TIP 1. Find The Right Lender
Although the program does not require that you have a preexisting relationship with the bank you use, most banks will not take applications from applicants who do not do business with that bank. It is easiest to go through a bank with which you do business. If your bank does not make such loans, there are other sources that will, but you have to look for them. Find an appropriate lending source as soon as possible.
TIP 2. Get Your Documents in Order
To make the application, you will need certain documents for the lender. They may differ somewhat from lender to lender, so check with your prospective lender. Basically, for a first draw loan, you will need your 2019 or 2020 income tax returns, documentation proving you were in business in February 2020 (generally an employee tax reporting form or a bank statement). For a second draw loan you will also need profit and loss statements for 2019 and 2020 showing a 25 percent or greater decrease in earnings for 2020 over the same quarter in 2019. Have your documents together and in electronic form prior to starting your application. People have reported issues when they attempt to go back to partially completed applications to add documents. We think the best bet is to start and complete the application in the same session. That means having your documents immediately available.
Tip 3. Keep Good Records
You don’t need to establish a separate account for the loan proceeds, although some have done that for convenience. You do need to establish that you used the proceeds for payroll expenses and other qualified expenses (at least 60 percent must be payroll) to qualify for forgiveness. You need to demonstrate that you did that.
Tip 4. Apply for Forgiveness
The forgiveness process does not come automatically. You need to make a separate application for it. You should have no problem getting some or all of the loan forgiven if you comply with the rules and timely apply for the forgiveness. If you do not properly apply for forgiveness in a timely manner, you do not get the loan or any portion of it forgiven.
Tip 5. This Is Too Good an Opportunity to Miss
If you qualify, apply now.
For more information about the PPP loan program, check with your financial institution and/or go to the SBA website.
Published in GPSolo eReport, Volume 10, Number 9, April 2021. © 2021 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association or the Solo, Small Firm and General Practice Division.