Your Top PPP Questions, Answered by the SBA

Many small businesses need a lifeline to pull through the COVID-19 crisis. Thankfully, there are relief options to help you land on your feet. But they’re not always easy to navigate, especially because the rules change quickly. 

So there’s little wonder that you have questions: What are the current PPP guidelines? How can I get my PPP loan forgiven? How do I use the funds? 

To help, we went directly to the SBA for answers. We held a webinar to take on your questions about the Paycheck Protection Program (PPP). We were joined by two experts from the SBA: 

• Carlos Hernandez, a lender relations specialist who’s been with the SBA for over nine years, and 
• Nadia Boone, assistant district director in Massachusetts with a 22-year career in the SBA. 

PPP Questions and Answers From the SBA

Here’s what they shared in response to nine common questions about PPP, asked by you, our members. Read on or jump to the question that best fits your needs.

• What are the new changes to the PPP?
• As a sole proprietor, can I apply with my gross income?
• If I already applied using my net profit, will the changes be retroactive?
• Do I have to use my PPP funds right away?
• What timeframe can I use for the 25% reduction in gross receipts?
• Do I have use the first draw before I apply for the second one?
• My bank is sitting on my application. Should I try another lender?
• Does my first loan have to be forgiven before I apply for a second one?
• What's the process for applying for forgiveness?
• PPP resources and more information

1. What are the new changes to the PPP?

On February 22, President Biden announced a series of changes to SBA's Coronavirus Relief Programs in the form of a PPP loan update. The focus was on ensuring equity. 

Our SBA experts outlined one of the biggest changes: a 14-day exclusivity period for businesses and nonprofits with fewer than 20 employees. 

“During this period, if a business owner with 20 employees or more submits the application, it won't be allowed,” Carlos explained. “So this is really going out there and helping out those small businesses.”

The exclusivity period applies to both first and second draw loans. It’s running now and ends on Tuesday March 9, 2021, at 5pm ET, so get in quick.

The other major change is a loosening of restrictions on business owners with prior non-fraud felony convictions or student loan debt delinquency. 

President Biden also announced changes to the funding formula that will allow sole proprietors, independent contractors, and self employed individuals to receive more financial support. Go to the next question to read more. 

You can get all the details  on the changes  in the new interim final rule: Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to Loan Amount Calculation and Eligibility.

2. As a sole proprietor, can I apply with my gross income?

Yes, and that’s good news for solos. 

Based on the Biden administration announcement, the SBA released a PPP update allowing sole proprietors, self employed, and independent contractors (those who file IRS Form 1040, Schedule C) to apply using their gross income, instead of their net profit. 

This change means that solos are now eligible for larger loans in PPP round two than they were before. And that more businesses are eligible, as many solos don’t record any net profit, leaving them unable to apply for PPP under the previous guidelines. 

There are a few new application forms, so check with your lender before applying. 

You can dig into the details in the new interim final rule.

3. If I already applied using net profit, will the changes be retroactive?

Unfortunately not. If you’ve already been approved for PPP based on your net profit, you won’t be able to change your loan amount to reflect gross income. The changes aren’t retroactive.

4. Do I have to use my PPP funds right away? For example, what if my business is seasonal and currently closed?

Our SBA experts say that the PPP loan has an eight to 24-week covered period. 

The day you receive money from the bank is the day your covered period begins.

“What does that all mean? The day you receive the money from the bank is the day your cover period begins,” explains Carlos. “From that point on, you have either as little as eight weeks or up to 24 weeks to fully utilize these funds.”

He adds that tracking and documenting your spending during this period is crucial for loan forgiveness. “When it comes to forgiveness time, only expenses and costs paid or incurred during this covered period are eligible for forgiveness.”

5. Regarding the 25% reduction in gross receipts for second draw loans: Do I have to use a calendar quarter?

You can't pick any three months. It must be a calendar quarter.

If you're thinking about accessing a PPP loan for the second time, clarifies Carlos, there are two additional criteria you have to meet:  

• You must have no more than 300 employees.
• You must demonstrate at least a 25% reduction in gross receipts between a comparable quarter in 2019 vs 2020.

“Headquarters has clarified that they’re calendar quarters, so you can't pick any three months, it must be a calendar quarter,” he says.

 As for which quarter, the SBA leaves it to up to the business to choose.

6. Do I have to use the first draw before I apply for a second one?

“When you do apply for that second time draw, you have to say you either used up or will use all of the proceeds for eligible expenses from the first draw loan,” says Carlos.

The bottom line here is that the first draw and second draw loan periods cannot overlap. 

Given that the covered period is eight weeks at minimum, you cannot be approved for a second draw loan until that time is up. 

However, notes Carlos, “A lender only has 10 days to get this funding now, so they can approve your loan and have it sit there until your current period is over.”

Read more about eligibility in the SBA’s Top-line Overview of Second Draw PPP. 

7. My bank is sitting on my application. Should I go to another lender?

A number of you in the Alignable community have been left in the dark about your application status. 

Unsurprisingly that’s left you wondering whether you should “double your odds”, as Eric puts it, by going and applying somewhere else (just as long as you're not taking both loans if they both get accepted).  

Carlos answers with a clear no. 

Applying at multiple places could delay the process, he says, because it can cause the system to throw back an error saying you have an act of approval somewhere else. “And now that new lender can't push it forward until that other one has been resolved,” he explains.

Carlos adds that, for businesses wanting to know where they stand on their approvals, the only reasonable thing to do is reach out to the bank. If there’s a problem with the submission, the bank will have an error code with a specific reason attached.

 “Only the bank can give them that update,” the SBA tells us. “We can’t.”

8. Does my first loan have to be forgiven before I apply for a second one?

You can have money outstanding and still apply and get approved for a second drop.

The SBA gives us good news on this one: “No, you can have money outstanding and still apply and get approved for a second drop.”

What about if you have a portion of your loan that’s not forgiven – for example, if some of your spending was deemed ineligible, or you have some funds left over? 

Carlos explains that these portions of the loan need to be repaid. “Any balance remaining has a fixed interest rate of 1% that's non compounding and non adjustable. There are no fees or prepayment penalties with this, and it's a five year maturity.”

If the SBA loan was approved prior to June 5, 2020, the loan maturity is two years only,  but, says Carlos, “Do it well, and the small business can negotiate with the lender to extend that to 4-5 years.”

9. How can I get my PPP loan forgiven?

The forgiveness process begins with the small business and the lender. 

“Some lenders have a portal now where you can go and submit your information online. Others receive it manually, it totally depends on the lender,” explains Carlos. 

Your best bet is to check with your lender and ask them how they are receiving these forgiveness applications, he says.

There’s a streamlined forgiveness application form that is available to any small business owner that has a PPP loan of $150,000 or less.

As for the process itself, if you hate paperwork (who doesn’t), here’s some good news: “There’s a streamlined forgiveness application form that is available to any small business owner that has a PPP loan of $150,000 or less,” says Carlos. 

It’s called the 3508S, and it has only 4 pages in total — only one of which you have to fill out. 

On top of that, you no longer have to submit your receipts, payroll reports, rent checks, etc, to apply – you just need to keep them on file. 

If you received your loan through a bank, you submit the application to them. They have 60 days to review and submit to the SBA. The SBA has 90 days to review it and pay the bank, which then gets passed along to you.

In all, this makes the process for sub-150k loans quite easy. There are a few other details to be aware of, so check out this post on PPP Loan Forgiveness Update Under $150k if you want to know more.

And if you’re wondering what the rules are for PPP loan forgiveness for both first and second draw loans, the SBA breaks them down in their PPP forgiveness FAQ here. 

Bonus: Where can I go for more resources and information?

There are a bunch of helpful resources online. Here are a few worth having on hand:

• SBA - all Coronavirus relief options
• SBA - Lender Match
• SBA - other funding sources for small businesses
• SBA - FAQ about PPP for Lenders and Borrowers
• Alignable Coronavirus Resource and Recovery Center
• Alignable Covid Relief Support Group
• PPP Loan Forgiveness Guide for the Self-Employed
• Loan Forgiveness Under $150k Update

Have you applied for financial relief? What has your experience been like? Share your story or any questions you have in the comments below.

Special thanks to Tania Braukamper for putting together this FAQ and the SBA for participating in our webinar and answering member questions.