Do I Qualify for a PPP Loan?

11 Feb Do I Qualify for a PPP Loan?

Running a business successfully during the COVID-19 pandemic has been challenging for professionals in many industries. From government-mandated shutdowns to budget cuts and reductions in consumer spending, many factors have effected revenues and forced the layoffs or furloughs of millions of Americans. Fortunately, the SBA’s Payment Protection Program (PPP) was designed to help businesses keep their workforces employed until the pandemic is over.

Companies receiving PPP loans can use those funds to cover payroll costs, benefits, mortgage interest, rent, utilities, and worker protection costs related to COVID-19. Many borrowers are even eligible for PPP loan forgiveness once they’ve utilized the funds they receive.

As of January 31, 2021, the SBA has approved more than 6 million PPP loans, with nearly 900,000 approved since the beginning of this year. At present, you have until March 31, 2021 to apply for a first or second draw PPP loan. You can utilize the SBA’s fee Lender Match tool to find an approved lender, but before you do, you should familiarize yourself with the current requirements.

First Draw PPP Loans
If you did not receive a PPP loan in 2020 and are applying for one now, it is considered a first draw PPP loan application. To qualify, you (or your business) must:

• Be an independent contractor, sole proprietorship, single-member LLC, partnership, C corporation, or nonprofit.
• Have been in business before February 15, 2020.
• Be open and operational.
• Have fewer than 500 employees per location.

Second Draw PPP Loans
If you received a PPP loan in 2020 and are applying again now, it is considered a second draw PPP loan application. To qualify, you (or your business) must:

• Be an independent contractor, sole proprietorship, single-member LLC, partnership, C corporation, or nonprofit.
• Have been in business before February 15, 2020.
• Be open and operational.
• Have fewer than 300 employees per location.
• Have used all your previous PPP loan funds.
• Show a 25 percent or greater revenue loss when comparing gross revenue in a given quarter of 2020 with that of 2019.

If you are an independent contractor, sole proprietorship, or single-member LLC, you will need to submit tax-ready 2019 and/or 2020 Schedule C forms from your personal tax return with your application. You must have reported a net profit on your Schedule C in 2019 or 2020 as well. If you have employees on payroll, you do not need a net profit but will need payroll tax forms 940 and 941/944 for 2019 or 2020.

If your business is a partnership, only one partner should submit a PPP loan application on its behalf. If you have employees on payroll, you will need payroll tax forms 940 and 941/944 for 2019 or 2020. You can also include the Schedule K-1s for partners who do not take a salary.

If your business is a C corporation, you are only eligible for the PPP if you have employees on payroll or pay yourself through payroll. Owner’s draws or distributions that avoid payroll tax do not qualify for PPP coverage. If your business is a nonprofit, you will also need to have had payroll costs in 2019 or 2020.

PPP Disqualifications
Regardless of revenue losses you may have sustained due to the COVID-19 pandemic, if you answer yes to any of the following questions, you are not eligible for a PPP loan:

• Is your business permanently closed?
• Are you or another owner incarcerated, on probation, or on parole?
• Were you or another owner convicted of a felony within the last year?
• Have you or any other owners of your business defaulted on a loan for the SBA or any other federal agency within the last seven years?
• Have you or your business filed for bankruptcy?
• Is your business a hedge fund or private equity firm?
• Is your business in an industry that is typically not eligible for SBA 7(a) loans?
• Is your business primarily engaged in lobbying or other political activities?
• Is your business owned by an entity created in, or with significant operations in, the People’s Republic of China or Special Administrative Region of Hong Kong?
• Does your business include any board members who are residents of the People’s Republic of China?