The first question one has to check into for the second round of PPP is, do you qualify for the program? The first test is black and white, and you have to meet one of two criteria.
- Your gross receipts in 2020 are down at least 25% compared to 2019
Or
- Your gross receipts in one quarter of 2020 are down at least 25% compared to the same quarter in 2019
If you have made this cut: many business owners then face a more challenging and greyer decision. You have to sign that you need the money to support the ongoing operations of your business.
This attestation was pretty vague for the first round: one could argue that we thought the world was about to end, and it was critical to stuff as much money as we could under our mattresses. Survival instincts were appropriately alive and well.
Some businesses are sadly and unfortunately in that same survival boat. They are hanging on by a thread and genuinely need this money to survive.
On the other hand, I believe millions of businesses will meet one of the two 25% criteria – but if you look at their bottom line or profitability, they are doing just fine or better than before. They've used their first round of PPP money, cut some expenses, pivoted, and are on their way.
Business owners and entrepreneurs in this boat will have to decide whether or not to take the second round of PPP money. They will be able to get it – it’s not up to banks or lenders to verify the attestation. But then they will have to live with the fear of an auditor knocking on their door one day.
Ami, thanks as always for your work on these Stimulus programs.
Question - Is there guidance on how "Gross receipts" is going to be interpreted? Would it be based on your tax method of accounting (Accrual vs Cash)?
My company had a really hard time with receiving cash in Q1 2020, and the rest of the year, but from accrual perspective things were not terrible. It feels like Cash would make more sense because I can't write payroll checks with accrued revenue.
Thanks,
Nick
it is based on your tax method of accounting
Of the two different criteria to qualify, how would a business ever have a 25% reduction in annual sales without at least one quarter‘s being 25% less?
in other words the annual criteria is meaningless ?
We are exactly in the situation that you describe. We had a couple of tough quarters, so we are meet the 25% year-over-year decline, but we aren't hanging by a thread. Due to covid, we have a couple of very significant projects that may not continue for much longer. Also, we have some new opportunities that could be very large for us, but the level of uncertainty is high. The prudent thing to do would be to take the money.
However, if things go well over the next six months, with 20 20 hindsight, people might say that we were doing fine and took the money even though we didn't need to. However, sitting here today, it feels very uncertain. It is a difficult situation and I am very unsure what to do.
Thanks,
Mike
its a personal decision
As a follow up to my question above I worry that the SBA meant to change the criteria...from 30% in any quarter to at least 25% for the year...
I have 3 quarters above 25% reduction, one quarter of about 6% reduction for a annual 24.6% reduction...
should I be concerned?
u should be elegible
Our business is currently running SOLELY on loans - about 1M plus a 150K EIDL loan and the slight profit made has been going towards paying the interest. Would this be a good enough reason to attest that we NEED the money? Because at this rate we realistically do not know when we'll ever pay the loans.
Sounds like a legitimate position but I don't know all of the details.