Ahead of the reopening of Paycheck Protection Program (PPP) funding on January 19, 2021, Andrew Lohmann was quoted in Virginia Business offering insights for businesses considering new loans under the program.
The U.S. Small Business Administration (SBA) was appropriated $284.5 billion for another round of funding in the relief bill signed in December 2020, including funding for “second draw” applicants that already received an earlier PPP loan, but there is a separate set of eligibility requirements for those second draw borrowers. For example, they will need to demonstrate at least a 25% drop in gross receipts between comparable quarters in 2019 and 2020.
“That’s going to eliminate a lot of businesses that have basically been able to sustain, or have even prospered during this time,” Lohmann said. In advising would-be second draw applicants to carefully review 2019 and 2020 financial records, he added that they should be aware that gross receipts doesn’t necessarily translate to gross revenue or net income, but it’s a test that’s based on existing SBA standards. “
Additionally, businesses that have been involved in a merger or acquisition in 2020 will have an impact on this financial review. “Borrowers are advised to look at how the new second draw PPP will apply to how you calculate gross receipts, either based on acquisitions that a borrower has made or dispositions the company has made during 2020.”
While a second PPP loan may be an appealing option for struggling businesses, Lohmann doesn’t expect demand to be as high for second draw applicants. “I’ve heard fewer companies, fewer clients talking about taking advantage of the second draw, either because they have weathered the storm or, unfortunately, the second round came too late.”
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