Finally, some good news for our Creators (our partner restaurants and mobile food vendors)—after months of gridlock, The Consolidated Appropriations Act, 2021 was signed into law by congress in late December. The act includes a new round of the funds ($284 billion!) for the Paycheck Protection Program (PPP), as well as funding and tax credits for other programs designed to help small businesses, including restaurants, mobile food vendors and agricultural producers, growers and processors.
Wading through the massive amount of information about the new act is daunting even for experienced policymakers and accountants, so we put together a guide to help our Creators navigate the new policies and get the financial help they need. Friendly warning: don’t drown in the alphabet soup of acronyms! Here are some FAQs and our best explanation.
What is the PPP?
The PPP, or Paycheck Protection Program loans is a program managed by the Small Business Administration (SBA) that was launched as part of the original March 2020 CARES (Coronavirus Aid, Relief and Economic Security) Act. The SBA allows banks, community lenders and fintech (financial technology) companies to distribute PPP loans to struggling small businesses on its behalf. It’s part of the Cares act.
Who is eligible to receive PPP loans?
Sole proprietors, independent contractors, self-employed individuals, some nonprofits, some seasonal employers, small faith-based organizations, and small housing cooperatives are eligible.
What’s most relevant to our Creators is that small business owners that operate under the North American Industry Classification System (NAIC) code beginning with 72 (Accommodation and Food Services – U.S. Census Bureau) are also eligible. Mobile food vendors typically operate under code 722330, meaning they qualify.
These are the PPP loan eligibility specifications:
For first-time borrowers:
- Less than 500 full-time, part-time or seasonal employees.
- Your business was operating before February 15, 2020, and is still operating.
For second-time borrowers:
- Less than 300 full-time, part-time or seasonal employees.
- You can provide proof (tax filings) that your revenue (gross receipts) dropped by at least 25% in any 2020 quarter compared to the same quarter in 2019.
- You’ve used or will use the full amount of your first PPP loan before your second loan is distributed. (This is called the first-draw PPP loan and second-draw PPP loan.)
Note: The SBA lists COVID-relief and PPP information in other languages here.
Who is NOT eligible to receive PPP loans?
The list is pretty long and includes lobbying, political, financial services and cannabis businesses and any business that has defaulted on SBA loan or federal loans. A few things to note that may affect your eligibility:
- Businesses that are at least 20% owned by someone who is currently on probation or parole, incarcerated, or subject to an indictment are not eligible.
- Businesses that do not meet size standards.
- Businesses that are affiliated with the People’s Republic of China or Hong Kong may not be eligible.
- Businesses that failed to comply with PPP program requirements the first time around.
When can I apply for a PPP loan?
The PPP loan application window opened on January 11. The last day you can apply is March 31. 2021.
How do I apply for a PPP loan?
Your best bet is to find a lender who can help you with the application process. However, you’ll need to fill out application forms, which you can review or download here:
How do I find a PPP lender?
You don’t apply directly to the SBA for a PPP loan. Instead, you apply to an SBA-approved lender. The SBA offers Lender Match, a free online tool that helps small businesses connect with approved SBA lenders.
You can also apply for PPP loans through fintech (financial technology) companies (some connect you to lenders and others do the lending). Here’s a list from the U.S. Chamber of Commerce and another from Forbes.com.
How much money can I receive in a PPP loan?
Food businesses can receive up to 3.5 times their average monthly payroll costs from the last 12 months of payroll—up to $10 million for first-time borrowers and $2 million for second-time borrowers. (Other industries can receive up to 2.5 times payroll costs. It doesn’t include non-payroll costs.)
What can I use the money for?
To receive partial or full PPP loan forgiveness (more on this in a moment), you’re only allowed to use the money for specific business expenses during the covered period. The covered period can be anywhere between eight and 24 weeks after receiving the loan. (Note: If you received a PPP loan that’s been forgiven, some of these expenses are ineligible under a second PPP loan.)
You must spend at least 60% of the PPP loan on:
- Employee payroll costs
- Health care insurance payments
- Dental and vision plans
- Life insurance (not if your first PPP loan was forgiven)
- Disability benefits (not if your first PPP loan was forgiven)
- Owner compensation costs
You can spend 40% or less of your PPP loan on:
- Employee paid time off and sick leave
- Pension and retirement plans
- Federal taxes
- State unemployment insurance
- Mortgage payment interest
- Software or cloud services that facilitate product or service delivery, payment processing, accounting, etc. (not if your first PPP loan was forgiven)
- Costs to repair damage from vandalism and looting due to civil unrest (not if your first PPP loan was forgiven)
- Supplier costs essential to business operations (not if your first PPP loan was forgiven)
- Personal protection equipment such as masks that help you comply with COVID-19 safety guidelines (not if your first PPP loan was forgiven)
- Equipment and material such as plexiglass separators that help you comply with COVID-19 safety guidelines (not if your first PPP loan was forgiven)
What are the PPP loan terms?
All PPP loans have a fixed interest rate of 1%. The interest rate is non-compounding and non-adjustable. Lenders may NOT charge yearly or guaranteed fees, request collateral or charge a prepayment penalty.
The loan maturity (the date the final payment is due) is five years.
When the first PPP loans were issued in 2020, they initially had a fixed deferral period (permitted delay for repayments) of six months. The SBA modified the deferral period retroactively for all PPP loans. Now borrowers don’t have to start making payments until the SBA notifies their lender of the loan forgiveness application amount. However, if the borrower doesn’t apply for loan forgiveness, they need to start making payments 10 months after the covered period ends.
For example, say you borrow $30,000 in a PPP loan. You don’t need to make any payments until the SBA decides if it can forgive some or all your loan amount. Say the SBA determines it can forgive $25,000 of it 18 months after you received the loan. You don’t make any payments for those 18 months, and you would only have to repay $5,000 (split across monthly payments).
How do I figure out how much I should borrow?
The SBA and the Treasury Department provide documents to help you determine how to calculate maximum loan amounts and what documentation you’ll need to provide.
- For first-time borrowers, review this document (question #2 is most likely to apply to small restaurants and mobile food vendors). It will help you calculate your 2019 payroll costs, so you’ll know how much you’ll need to borrow to be able to pay yourself and your employees.
- For second-time borrowers, use this document. It will help you determine your gross receipts and eligibility for a second PPP loan.
I identify as BIPOC (Black, Indigenous & People of Color) – are there PPP lenders more willing to help me?
If you identify as a BIPOC, your best bet might be to look for SBA-approved MDIs (Minority Depository Institutions) or CDFIs (Community Development Financial Institutions). An MDI is a bank or credit union owned or managed by a person of color. CDFIs are financial institutions dedicated to serving disadvantaged and low-income communities.
Many MDIs and CDFIs were excluded as lenders from early 2020 PPP plans, as well as many BIPOC borrowers. Many of these highly effective lending institutions outperformed traditional PPP lenders and are more willing to lend to BIPOC business owners.
Currently, the SBA’s Lender Match tool submits loan requests to CDFIs and small asset lenders, so this is a good place to start.
What kind of documentation will I need to apply for a PPP loan?
You’ll need your bank statements, business tax forms, your average monthly business and payroll costs, proof of rent, utilities and other bills, payroll tax filings (or payroll processor records) and details of owners with more than 20% ownership in your business.
What does forgiveness mean for PPP loans?
The SBA can “forgive” part or all PPP loan amounts, which means you are not required to repay the loan—and nonpayment does not negatively affect your credit.
The SBA only forgives PPP loans when you use the funds for eligible payroll costs, business mortgage interest rates, rent and utilities (see the full list above). As part of the forgiveness process, you’ll need to spend the money on expenses paid or incurred during the eight or 24-week period after you received the loan. You also must maintain the same number of full-time employees you had when you applied (there are some exceptions)—and at the same pay rates.
When do I have to apply for forgiveness?
The application deadline to apply for forgiveness is 10 months after the last day of your covered period.
You likely won’t know your status for a while since your lender has up to 60 days to review your application. If approved, your lender submits it to the SBA, which has 90 days to review. If approved, the SBA issues funds to the lender, relieving you of any loan debt.
How do I apply for forgiveness?
You apply to your lender, not the SBA directly. You’ll use one of three forms:
- Form 3508S: new for 2021, this simplified form is for borrowers who borrowed $150,000 or less of forgiveness amount.
- Form 3508EZ: for borrowers who have not reduced employee wages by more than 25% during the covered period, sole proprietorships and independent contractors.
- Form 3508: the original form still in use.
- The Treasury Department lists all these forms and more here, as well as this Loan Forgiveness Fact Sheet.
If I already have a PPP loan, other loan or a line of credit, am I still eligible for a PPP loan?
Possibly. If you have a PPP loan already, you’re eligible if you used or will use the entire loan amount, and you can prove you lost at least 25% of revenue in any 2020 quarter compared to the same quarter in 2019. Even if you received forgiveness for your first PPP loan, you’re likely still eligible. If you have loans or credit from other programs or institutions, you may still be eligible.
Does the SBA offer any other COVID-relief programs beyond PPP loans?
Yes! The SBA offers several other options:
- COVID-19 Economic Injury Disaster Loans (EIDLs): These are for businesses that didn’t experience physical damage due to COVID-19 but have experienced financial losses. You can borrow up to $150,000 to pay bills, payroll, fixed debts and accounts payable.
- The new Consolidated Appropriations Act added $20 million to an emergency grant program for businesses in low-income communities. If you have a business in a low-income area and received an EIDL for less than $10,000, you can apply for the remaining amount up to $10,000. This article contains a lot of helpful info regarding EIDLs.
- Express Bridge Loan Pilot Program: This program allows small businesses that already have a relationship with an SBA Express Lender to receive up to $25,000 quickly. You may be eligible for this loan if you’re waiting for decisions on your EIDL.
- 7(a), 504 and Microloans: The SBA will automatically pay principal, interest and fees on 7(a), 504 or microloans for up to six months.
You can also check out this helpful table from Gusto.com that lists small business relief options by state.
Help Is Here, So Don’t Delay
If you’ve been struggling to keep your food industry business afloat during the pandemic, help is finally here. Fortunately, provisions in the new law are aimed at helping restaurants and mobile food vendors! When the first PPP loans and other COVID-19 relief programs became available in 2020, the funds went quickly. If you’re planning to apply for a PPP loan, it’s best to do it sooner than later, especially if you missed out on the first round in 2020. We here at Off the Grid know how much our partner Creators have been struggling, and we’re happy to see some federal assistance.
Note: We’re not tax attorneys, accountants, policymakers or financial advisers! The information we presented here isn’t meant to be taken as legal, tax or financial advice. We recommend contacting your accountant, attorney, lender or SBA for specific guidance.
Byline: Lee Ridley