Don't repeat history: What businesses did wrong in Round 1 of the PPP loan process.
Now that the Payroll Protection Plan is up and running again for a second round, we would like to review some common mistakes people made in round # 1.
- Not including the proper payroll documentation to support the loan request
- Not reducing the wages paid over $100k for the year when calculating the loan
- Including 1099 payments or employer distributions, which are not run through payroll processing, when calculating the loan amount
- Using net pay instead of gross pay
- Failure to including non-salary items such as certain employee benefits, including health insurance and retirement benefits etc.
Your mistakes can be forgiven
If you made, or believe you made an error in round #1 of PPP, the new law allows for some to amend their initial loan under narrow terms. This applies to loans approved before August 8, 2020, and for those that forgiveness payments have not already been remitted to the SBA. Here is a brief summary of the requirements to reapply for a Round 1 PPP loan.
- The increase must be applied to the lender of record for the first draw. If the loan was sold after it was originated, the lender that purchased the loan is the lender of record.
- Borrowers that returned or repaid a first-draw PPP loan are eligible to reapply for that loan provided the lender reported to the SBA before Dec. 27 that the borrower had fully repaid the loan or canceled the loan.
- Borrowers that did not accept before Dec. 27 the full amount of a first-draw PPP loan for which they were approved may apply for an increase in the loan up to the amount previously approved.
- If a partnership received a first-draw PPP loan that covered payroll costs of the partnership’s employees and other eligible expenses but did not include any amount for partner compensation, the lender may electronically submit a request through the SBA’s E-Tran Servicing site (E-Tran) to increase the loan amount to include appropriate partner compensation.
- Seasonal employers are now allowed to use the average total monthly payments for payroll for any 12-week period the employer selects between Feb. 15, 2019, and Feb. 15, 2020. Seasonal employers that received a first-draw PPP loan may be eligible for a loan increase if application of the methodology in Section 336 results in the calculation of a higher loan amount.
You are not alone
Provisions for the second draw of PPP are different than in the first round. For help with any questions you have about first or second draw PPP loans please contact Taylor Gibson, COO, at taylor.gibson@optimaoffice.com.