Covid-19 Resources
The Second Round of PPP Loans: What You Need To Know
Jan 26, 2021
The Small Business Administration has just released guidance on what they’re calling the Paycheck Protection Second Draw Loans. They’ve made a few tweaks to the program since the first round in 2020. In this post we break down some of the eligibility requirements from the Small Business Administration as well as get advice from fellow restaurant owners that went through the process the first time around.
First, here are some important notes from the Small Business Administration:
To be eligible for a PPP loan:
1. If you received a loan from round one, you can apply for round two if you’ve already used all of the funds from your first loan, or will have used all of the funds by the time of the second disbursement.
2. You can’t have more than 300 employees. If you have multiple locations, the number of employees at each location can’t exceed 300.
3. You have to show you have had at least 25% less business between comparable quarters in 2019 and 2020.
To qualify for loan forgiveness:
1. You keep your payroll compensation at the same level as pre-pandemic (no pay cuts).
2. The loan funds are spent on payroll and other eligible costs such as mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
3. At least 60% of the loan amount is spent on payroll.
Something special for restaurants
1. As a restaurant owner, you can apply for up to 3.5x your average monthly payroll costs in 2019.
2. Most industries are only able to apply for loans that are 2.5 times their average monthly payroll costs in 2019.
3. The deadline to apply is March 31, 2021.
Tips for Applying for PPP Funds
The first round of PPP Loans was particularly tricky for independent restaurateurs. But with one round under their belt, here’s some advice from fellow independent restaurant owners and operators on how to prepare for PPP funds.
1. Figure out your monthly payroll costs ASAP
Some of the most important documentation when applying for PPP funds is your monthly payroll costs. This is the number that your total loan amount will be based on.
“The biggest tip I can offer is to have your payroll worksheet for Full Time Equivalent employees (FTE) ready at hand for your estimated funds that you can apply for. Build a spreadsheet with your estimated costs (rent, utilities, or any other bills) that qualify for forgiveness. We were able to maintain all of our 8 employees at their normal hours Pre-COVID by coming prepared with this data.”—Anthony Guajardo, Mijo’s Taqueria & By the Bay BBQ
Don’t forget to include benefits like healthcare, pension, and 401(k). But only include what you usually contribute, not what employees contribute. Payroll taxes also cannot be included in the calculation.
2. Work closely with your bank
You must work with a lending institution in order to receive PPP funds. Ideally you should work with a bank you already have a relationship with so you can quickly and efficiently work through the process. But if that’s not a possibility, shop around to make sure you’re working with someone you can trust.
“My suggestion would be to communicate early and often with your bank. If your bank is not an SBA-loan-approved lender, ask them for a referral. The earlier you can communicate with an approved lender the better.”—Remi McManus, KIN
“Have a bank that you trust and know the people there. We go to the bank once or twice a week to deposit or whatever. We don’t have to because we could do it all online. But there is value in having a neighborhood relationship with a bank where they’ll work on Sunday or do other things for you that a big bank might not.”—Irene Li, Mei Mei
3. Check with your lender for the documentation you’ll need
Make sure you pull financial reports and tax documents and organize them so that you can easily figure out your total monthly expenses. Work with your bank or lender to the list the documentation they require to process a loan.
“You have to be really organized to apply for a loan. We needed to have Profit & Loss (P&L) statements ready to go and all the tax documents in order. Those are not necessarily things that many small businesses have on hand. We were in the habit of pulling a P&L every month (pre-COVID) so it made it very easy for us to get our documentation together and submit for the PPP. It was a good feeling to look at the list of all the documentation they needed and realize, ‘Yeah, we have all of those,’ and it definitely gave us an advantage going into the application.”—Irene Li, Mei Mei
4. Budget and spend by the rules to ensure loan forgiveness
For this second round of PPP loans, the time period for spending the funds is still between 8 weeks and 24 weeks. This gives you as an owner ample time to budget the funds accordingly and make sure you spend them in a strategic way. This way you can make sure you follow the rules in order to apply for loan forgiveness.
“Many restaurant owners I know received the first round of PPP funds and managed to spend the entire amount before the revisions were made to the guidelines in its usage [changing from an 8-week spending deadline to a 24-week spending deadline]. They never really had the time to plan nor the opportunity to maximize the potential of the amount given. With the first round, I personally took a gamble in holding onto the PPP for an extended amount of time in hopes to utilize the amount fully. I was able to manage the finances and stem the loss of funds and break-even for a short period. With the second round coming out, I think that owners should be as conservative as possible in spending. With the knowledge that we now have, we are capable of making smarter, more tactical, decisions in how we utilize the funds to ensure the future of our businesses and jobs for our employees.”—Carlo Lamagna, Magna Kusina
5. Set Up a separate bank account for PPP funds
According to the folks at We Sell Restaurants, this is one of the most important tips they’ve been telling clients. Have the loan deposited into this separate account and only pay expenses from that account that are eligible for loan forgiveness. By separating out PPP funds from your usual bank accounts, this will make accounting easier down the line when you apply for loan forgiveness.
For this second round of Paycheck Protection funds, some of the kinks appear to have been worked out and the process could run slightly smoother than the first round. But speed will still be of the essence to capture these funds. Work with your bank as soon as you can to get the process started. With more COVID vaccine becoming available every week, these PPP funds could be the bridge to brighter days ahead.
The Small Business Administration has just released guidance on what they’re calling the Paycheck Protection Second Draw Loans. They’ve made a few tweaks to the program since the first round in 2020. In this post we break down some of the eligibility requirements from the Small Business Administration as well as get advice from fellow restaurant owners that went through the process the first time around.
First, here are some important notes from the Small Business Administration:
To be eligible for a PPP loan:
1. If you received a loan from round one, you can apply for round two if you’ve already used all of the funds from your first loan, or will have used all of the funds by the time of the second disbursement.
2. You can’t have more than 300 employees. If you have multiple locations, the number of employees at each location can’t exceed 300.
3. You have to show you have had at least 25% less business between comparable quarters in 2019 and 2020.
To qualify for loan forgiveness:
1. You keep your payroll compensation at the same level as pre-pandemic (no pay cuts).
2. The loan funds are spent on payroll and other eligible costs such as mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
3. At least 60% of the loan amount is spent on payroll.
Something special for restaurants
1. As a restaurant owner, you can apply for up to 3.5x your average monthly payroll costs in 2019.
2. Most industries are only able to apply for loans that are 2.5 times their average monthly payroll costs in 2019.
3. The deadline to apply is March 31, 2021.
Tips for Applying for PPP Funds
The first round of PPP Loans was particularly tricky for independent restaurateurs. But with one round under their belt, here’s some advice from fellow independent restaurant owners and operators on how to prepare for PPP funds.
1. Figure out your monthly payroll costs ASAP
Some of the most important documentation when applying for PPP funds is your monthly payroll costs. This is the number that your total loan amount will be based on.
“The biggest tip I can offer is to have your payroll worksheet for Full Time Equivalent employees (FTE) ready at hand for your estimated funds that you can apply for. Build a spreadsheet with your estimated costs (rent, utilities, or any other bills) that qualify for forgiveness. We were able to maintain all of our 8 employees at their normal hours Pre-COVID by coming prepared with this data.”—Anthony Guajardo, Mijo’s Taqueria & By the Bay BBQ
Don’t forget to include benefits like healthcare, pension, and 401(k). But only include what you usually contribute, not what employees contribute. Payroll taxes also cannot be included in the calculation.
2. Work closely with your bank
You must work with a lending institution in order to receive PPP funds. Ideally you should work with a bank you already have a relationship with so you can quickly and efficiently work through the process. But if that’s not a possibility, shop around to make sure you’re working with someone you can trust.
“My suggestion would be to communicate early and often with your bank. If your bank is not an SBA-loan-approved lender, ask them for a referral. The earlier you can communicate with an approved lender the better.”—Remi McManus, KIN
“Have a bank that you trust and know the people there. We go to the bank once or twice a week to deposit or whatever. We don’t have to because we could do it all online. But there is value in having a neighborhood relationship with a bank where they’ll work on Sunday or do other things for you that a big bank might not.”—Irene Li, Mei Mei
3. Check with your lender for the documentation you’ll need
Make sure you pull financial reports and tax documents and organize them so that you can easily figure out your total monthly expenses. Work with your bank or lender to the list the documentation they require to process a loan.
“You have to be really organized to apply for a loan. We needed to have Profit & Loss (P&L) statements ready to go and all the tax documents in order. Those are not necessarily things that many small businesses have on hand. We were in the habit of pulling a P&L every month (pre-COVID) so it made it very easy for us to get our documentation together and submit for the PPP. It was a good feeling to look at the list of all the documentation they needed and realize, ‘Yeah, we have all of those,’ and it definitely gave us an advantage going into the application.”—Irene Li, Mei Mei
4. Budget and spend by the rules to ensure loan forgiveness
For this second round of PPP loans, the time period for spending the funds is still between 8 weeks and 24 weeks. This gives you as an owner ample time to budget the funds accordingly and make sure you spend them in a strategic way. This way you can make sure you follow the rules in order to apply for loan forgiveness.
“Many restaurant owners I know received the first round of PPP funds and managed to spend the entire amount before the revisions were made to the guidelines in its usage [changing from an 8-week spending deadline to a 24-week spending deadline]. They never really had the time to plan nor the opportunity to maximize the potential of the amount given. With the first round, I personally took a gamble in holding onto the PPP for an extended amount of time in hopes to utilize the amount fully. I was able to manage the finances and stem the loss of funds and break-even for a short period. With the second round coming out, I think that owners should be as conservative as possible in spending. With the knowledge that we now have, we are capable of making smarter, more tactical, decisions in how we utilize the funds to ensure the future of our businesses and jobs for our employees.”—Carlo Lamagna, Magna Kusina
5. Set Up a separate bank account for PPP funds
According to the folks at We Sell Restaurants, this is one of the most important tips they’ve been telling clients. Have the loan deposited into this separate account and only pay expenses from that account that are eligible for loan forgiveness. By separating out PPP funds from your usual bank accounts, this will make accounting easier down the line when you apply for loan forgiveness.
For this second round of Paycheck Protection funds, some of the kinks appear to have been worked out and the process could run slightly smoother than the first round. But speed will still be of the essence to capture these funds. Work with your bank as soon as you can to get the process started. With more COVID vaccine becoming available every week, these PPP funds could be the bridge to brighter days ahead.
