You May Be Eligible for the Second Draw PPP
Are you eligible to apply for the Second Draw Paycheck Protection Program (PPP)? If so, you will receive more money under new rules set by the Small Business Administration (SBA).
These new rules allow family child care providers to use their gross income to determine how much they can receive from the Second Draw PPP. Previously, providers had to use their net income (Schedule C, line 31). New rules allow providers to use gross income (Schedule C, line 7). This will make a big difference in how much money you can get.
Who is eligible for the Second Draw PPP?
The SBA has two forgivable loan programs: The First Draw PPP and the Second Draw PPP. You are only eligible for the Second Draw PPP if you have previously received money from the PPP.
If you have not received money from the PPP program before now, you may be eligible for the First Draw PPP, not the Second Draw.
You are eligible for the Second Draw PPP if:
You were in business before February 15, 2020,
You received money from the PPP in either 2020 or 2021,
and
You can show at least a 25% reduction in your gross income in 2020 as compared to 2019.
The deadline to apply for the Second Draw PPP is May 31, 2021. March 31, 2021. Some family child care providers are frustrated because they received money from the First Draw PPP too late to qualify for the Second Draw PPP.Update: There is no rule that requires you to wait at least 8 weeks before applying the Second Draw. But you have to have spent if before you can receive money from the Second Draw. At least 8 weeks have to have passed from the time you received money from the PPP in either 2020 or 2021 before you are eligible to apply for the Second Draw PPP. That means that if you received money from the PPP after February 3, 2021 you can’t apply for the Second Draw PPP, since after that date there aren’t 8 weeks before the March 31st deadline.
This article describes how to apply for the Second Draw PPP if you are a sole proprietor (self-employed), using SBA Form 2483-SD-C. If you are incorporated or a partnership, you will fill out SBA Form 2483-SD.
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To apply for the PPP money, contact your local bank or apply online using one of a number of online companies: PayPal, OnDeck, Kabbage, Biz2Credit, Intuit.
Below are my instructions on how to fill out the PPP Second Draw application form, called “Second Draw Borrower Application Form for Schedule C Filers Using Gross” at the top; SBA Form 2483-SD-C at the bottom left.
Note: When applying through your local bank or online lender, they will use their own application form that will look different than the SBA form.
Check One: Check “Sole Proprietor.”
DBA or Tradename: A DBA (Doing Business As) is a name you would get if you have registered your business name with your secretary of state’s office. If you have one, enter it. If you don’t, leave it blank.
Year of Establishment: Enter the year you started caring for children.
Business Legal Name: If you have one, enter it here. If you don’t, enter your own name.
NAICS Code: Enter 624410
Business Address: Enter the address where you care for children.
Business TIN: Enter your Employer Identification Number (EIN), or your Social Security number if you don’t have an EIN. You are not required to have an EIN to apply.
Business Phone: Enter your phone number.
Primary Contact: Enter your own name.
Email Address: Enter your email address.
Total Amount of Gross Income: Enter the amount from Schedule C, line 7. This line includes parent payments, subsidy payments, Food Program reimbursements, and state grants. Do not include federal or state unemployment benefits or money from previous PPP loans. You can use either your 2019 or 2020 gross income, whichever number is higher. If you haven’t yet filed your 2020 tax return, you can still fill out your 2020 Schedule C and use the number on that form.
Tax Year used for Gross Income: Choose the year of the Schedule C you are applying for.
Number of Employees: Enter “1” for yourself, plus any additional employees you paid payroll taxes for. You do not have to have paid employees to be eligible.
The next part is to be filled out if you don’t have employees (other than yourself).
A. Your gross income amount from 2019 or 2020 Schedule C, line 7: Enter your amount from line 7. Let’s use an example and say your number is $66,000. Note: If your gross income is more than $100,000, enter $100,000. Your gross income is considered payroll to yourself and SBA rules say that you can only count up to $100,000 in payroll to one person.
B. Divide A by 12: In our example above, you would enter $5,500 ($66,000 divided by 12 = $5,500).
x 2.5: Multiply B by 2.5. In our example above, this would be $13,750 ($5,500 x 2.5 = $8,750). This represents the amount you are eligible to receive. Note: Do not use these numbers on your form!
The next part is to be filled out only if you have employees (other than yourself).
Note: You can only count persons as employees for purposes of applying for the PPP if you treated them as employees. This means you should have withheld Social Security/Medicare taxes and paid other state and federal payroll taxes. So, if you treated a person as an independent contractor, filed a Form 1099 for a person, or hired your husband or child without filing the proper payroll tax forms, you can’t count them as employees on this form.
A. Your 2019 or 2020 Schedule C, line 7, minus the sum of line 14, line 19, and line 26: Line 14 is Employee benefits; Line 19 is Pension and profit-sharing plans; Line 26 is Wages. These expenses reduce your gross income. Let’s use the example that line 7 is $66,000 and the sum of lines 14, 19 and 26 are $10,000. You would enter $56,000 here.
B. Divide A by 12: In our example, $56,000 divided by 12 = $4,666.
C. Average Monthly Payroll for Employees: Here’s where you add lines 14, 19 and 26 and divide by 12. So, in our example, $10,000 divided by 12 = $833.
Add B and C: In our example, $4,666 + $833 = $5,499.
x 2.5 + EIDL: In our example $5,499 x 2.5 = $13,750. This is the amount you are eligible to receive.
Purpose of the loan: You can check one or more of the boxes here. You can spend all of the PPP money on payroll for yourself, so you could check just the “Payroll Costs” box. I would also recommend checking off at least the other following boxes: “Rent/Mortgage Interest,” “Utilities,” “Covered Operations Expenditures,” and “Covered Supplier Costs.” This will protect you in case you make a mistake in claiming payroll expenses. Checking more than one box does not mean you have to spend money on any one box.
PPP First Draw SBA Loan Number: Look at the paperwork you received when you received your PPP loan in 2020 to get your loan number. If you can’t find it, contact the lender where you applied for the loan.
Reduction in Gross Receipts of at Least 25%:
This is where it gets complicated! To get money from the Second Draw, you need to demonstrate that you had at least a 25% reduction in gross income in any quarter in 2020 compared to 2019. Your gross income is shown on your tax form, IRS Schedule C, line 7. This represents your income before any business expenses. Your gross income includes parent payments, subsidy payments, Food Program reimbursements and any state grants you received during the COVID-19 pandemic. It does not include any previous PPP forgivable loans or Economic Injury Disaster (EIDL) “loans” or “advances” you might have received. Note: Gross income does not include federal or state unemployment benefits. This income is personal, not business income.
You can compare your gross income for all of 2019 with 2020, or you can look at any comparable quarter from the two years. For example, if your gross income in 2019 was $90,000, your gross income for 2020 must be less than $67,500 ($90,000 x 75%) to show a 25% reduction. If you haven’t filed your 2020 taxes yet, you can fill out your 2020 Schedule C on your own to do this comparison.
If you want to compare quarters, you can pick any quarter in 2019 and multiply your gross income for that quarter by 75%. If your gross income is lower by this amount for the corresponding quarter in 2020, you are eligible. The first quarter of the year is January – March. The second quarter is April – June. The third quarter is July – September. The fourth quarter is October – December. If you don’t qualify for one quarter, try another quarter to see if you qualify.
Let’s look at an example: Let’s say you want to compare your third quarter for 2020 with 2019. Enter “3Q2020” in the box that says “2020 Quarter.” Enter “3Q2019” in the box that says “Reference Quarter.” Then enter your gross income in the two boxes that say “Gross Receipts” under each quarter. So, let’s say your gross income for the third quarter of 2020 was $20,000. Enter “20,000” in the first “Gross Receipts” box. Let’s say your gross income for the third quarter of 2019 was $35,000. Enter “$35,000” in the second “Gross Receipts” box. Since $20,000 is at least 25% less than $35,000 ($35,000 x 75% = $26,250), you qualify for the Second Draw.
Note: If you are comparing all of 2020 with 2019, enter “2020” in the “2020 Quarter” box and “2019” in the “2019 Quarter” box. In our example, if your gross income in 2019 was $90,000 and your gross income for 2020 was $66,000, enter these amounts under “Gross Receipts.” Since $66,000 is less than 25% of $90,000, you qualify ($90,000 x 75% = $67,500).
If you were not in business for all of 2019, you can compare quarters for the quarters you were in business. So, if your business began in May 2019, you can compare the third or fourth quarters of 2019 with the third or fourth quarters of 2020. If your business began in 2020, but before February 15, 2020, compare your gross income from the first quarter of 2020 with the second, third, or fourth quarters of 2020.
Remember: When comparing quarters, you can pick the one quarter that makes your eligible, even if the other quarters would make you ineligible. In other words, if you received large grant from your state in the second quarter of 2020, you may not be eligible for that quarter, but you can choose another quarter where you would be eligible.
How do you determine your gross income for any quarter? Look at your business records indicating how much money you received for those months. This may appear on your bank deposit records, Redleaf Calendar Keeper notations, the Schedule C Worksheet Report if you used the online software KidKare, or any other method you used to record your income.
If you hate doing math, or need help in seeing if you qualify by showing at least a 25% reduction in your gross income, here’s a calculator that will make it easier. Click on the Stimulus Navigator “Worksheet.”
Note: The instructions to the Second Draw application form says that you don’t need to fill out the boxes dealing with “Reduction in Gross Receipts of at Least 25%” if you applying for less than $150,000. However, before you breathe a sigh of relief, you should know that you will need to show this information when you apply for forgiveness. So, I believe it makes sense to complete this section when applying so you will know that you do qualify. It’s better to find out you didn’t qualify before you receive the money and have to pay it back!
Applicant Ownership – Enter your name, title (“owner”), and 100% for Ownership %. Then enter your EIN or Social Security number. (Enter the same number you entered earlier on this form.) Enter your mailing address.
Second Page
PPP Applicant Demographic Information (Optional): You can choose to fill out this section if you wish.
Questions
Enter “No” for the first three questions, and “No” for questions 4 and 5 (unless this applies to you). Enter “Yes” for question 6 and “No” for questions 7 and 8.
Note: For questions 4 and 5, after checking “No” in the box, you need to put your initials in the space provided to confirm your “No.”
Third Page
This page of the application asks you a series of questions to verify that you are eligible for this forgivable loan and agree to follow the rules. Put your initials next to all the paragraphs at the bottom half of the form.
Fourth Page
Continue to put your initials next to all of the paragraphs. Sign and print your name at the bottom of the page. Put the current date and enter "Owner" under "Title."
What can you spend the Second Draw PPP money on?
Payroll costs (this includes payroll for yourself and any employees)
For employees, this includes costs related to the continuation of group health care, life, disability, vision or dental benefits
Mortgage and vehicle loan interest (not mortgage prepayments or principal payments)
Rent
Utilities
Interest payment on debt obligations incurred before February 15, 2020
Food
Expenses to comply with the Centers for Disease Control or your state health department guidelines to maintain standards of sanitation, social distancing, or other worker safety regulations. This includes cleaning supplies, masks, disinfectants, and so on.
How do I pay myself?
You must spend at least 60% of your PPP money on payroll. Whether or not you have employees, you can use up to 100% of the money to pay yourself. To do so, write yourself a check or transfer money from one bank account to another.
Where do I go to apply for the PPP?
Contact your local bank or an online lender such as PayPal, OnDeck, Kabbage, Biz2Credit, Intuit. Because this new rule was recently announced, it’s possible your bank or online lender has not yet changed their application form to allow you to use your gross income, instead of your net income. You may have to wait a few days for them to recognize the new rule. Note: Some banks may require you to have a separate business bank account. This is not a requirement of the SBA. If you bank requires this, apply online with an online lender who will not require this.
How do I apply for forgiveness?
Contact your lender for forgiveness after spending the money. at least 8 weeks after receiving the money.
Unemployment
Receiving PPP money may affect your ability to receive state and federal unemployment benefits. Contact your state unemployment office for further information.
Tom Copeland – www.tomcopelandblog.com
Image credit: Small Business Administration
