COLUMBUS, OH (February 26 2021) - As of last Wednesday, President Biden and the Small Business Administration (SBA) adjusted the application requirements for the “Paycheck Protection Program” (PPP), a pandemic relief measure aimed at securing paychecks for employees of disadvantaged businesses. Small businesses are strongly recommended to apply for as long as the two-week window remains open. Continue reading for more details on the PPP, how the specific changes benefit the East Main corridor, and application requirements.
The “PPP” - what about it?
“PPP” refers to the “Paycheck Protection Program.” Originally established last April, this COVID-19 relief measure is currently administered by the U.S. Small Business Administration (SBA) in partnership with banks and thrift stores. The program eventually included Community Development Finance Institutions (CDFIs).
The program was intended to assist small businesses in weathering the pandemic by retaining their workforces. Despite the original focus on small businesses, the PPP was heavily utilized by larger businesses and was adjusted over time to include non-profits, educational institutions, and other establishments.
The PPP specifically allows entities to apply for low-interest private loans to pay for their payroll and certain other costs. This wage protection effort aimed to stabilize employment during the pandemic. These loans equal approximately 2.5 times the applicant's average monthly payroll costs. In some cases, the applicant can apply for a second draw that is equal to the first draw. The loans may also be partially or fully forgiven if the business keeps its employee counts wages consistent with pre-COVID levels. Loan proceeds may also be used to cover rent, utilities, and other operational costs.
What are the changes and why do they matter?
Since its inception, the $800-billion PPP had structural flaws that favored larger, more well-resourced businesses. A few fixes have been made since, including:
Creation of a two-week window, starting WEDNESDAY, February 24, during which only businesses with fewer than 20 employees can apply to prioritize support to businesses previously excluded from the application process thus far.
Expansion of eligibility for immigrant entrepreneurs.
Expansion of equitable funding for sole proprietors, independent contractors, and self-employed Americans, of which 70% are women or people of color.
Increasing access by removing barriers for borrowers with student debt delinquencies, making barriers less restrictive for business owners who have had criminal justice system involvement in the past, and by removing restrictions for eligible immigrant business owners.
Last week, the SBA also improved its practices around collecting demographic data by moving these questions to the first page of the application form.
Prioritizing applications from businesses with twenty (20) employees or fewer.
Many of these businesses were shut out of the first two rounds of the PPP process.
Linking loan borrowers’ amounts to the “gross income” entry on line 7 of the Schedule C.
This change will meaningfully increase the amount of PPP support available to microbusinesses.
Average loan amounts would remain low as other rules place caps on the amount of owner income that can be included in determining the loan amount.
Removal of exclusionary requirement for business owners who were formerly incarcerated for non-fraud convictions.
Removal of exclusionary requirement for the millions of Americans who are behind on student loan payments.
In short, these fixes are important for their ability to help small, minority-owned businesses. Nearly 95% of Black-owned firms and 91% of Latino-owned firms have no employees beyond the owners (as compared to 78% of white-owned firms).
Application Requirements
Before applying, be sure to gather the following required documentation:
Photo ID for all owners who own 20% of the business or more
2019 and 2020 Profit and Loss Statements to show revenue loss during 2020
2019 Business Tax Returns
For partnerships – include IRS Form 1065 and Schedule K-1
For sole proprietors – include IRS Form 1040 Schedule C
Business organizational documents
Payroll Reports with a list of gross wages, paid time off, and taxes assessed for all employees for all 12 months of 2020
2020 Employer IRS Documents (including one of the following for all 4 quarters of 2020):
Documentation to support Health Insurance and Retirement expenses incurred as a part of payroll expenses (e.g., a statement from insurance or retirement company).
Accounting requirements and tax implications
These fixes, along with those related to tax forms, were adversely and disproportionally impacting minority-owned firms. We anticipate that with these changes, we should conversely see more support going to these firms. The Special Improvement District strongly advises local businesses to apply while they can still secure funds in securing their pandemic employment costs.
More information on the program in general and relief options for small businesses can be found here.
Image from jmf.com.