Note that your 2nd PPP loan forgiveness documentation requirements will mostly depend on the exact expenses you covered with your PPP funds. To get your second PPP loan fully or partially forgiven, you will have to use the loan money on certain stipulated expenses.
The first PPP round was to be used for expenses like utilities, rent, payroll, employer-sponsored health insurance, and other eligible expenses, which were also inculcated into this second round. The second round of PPP funding covers four categories of additional covered expenses:
Categories of Expenses Covered By 2nd PPP Loan
- Operational expenses
- Property damage costs
- Supplier costs
- Worker protection costs
If you received a PPP loan in 2020, you may still qualify to apply for a second PPP loan as long as your business encountered a loss in revenue in 2020. Whether you now take your first or second PPP loan, these loans will have the same terms as the original PPP loan.
The second round of the Paycheck Protection Program (PPP) opened to qualifying borrowers on January 19, 2021. The Consolidated Appropriations Act 2021 includes a second round of funding for the PPP, with the sole intention to aid small businesses that were financially restrained by the pandemic.
Note that business owners could turn to the second-draw PPP loan to keep their businesses afloat whether they’ve taken a PPP loan previously or this is their first one. According to reports, the loans for the second round of PPP forgiveness are up to $2 million (as against the maximum of $10 million in the first round).
During the forgiveness process, you are allowed to choose a covered period between eight to 24 weeks. If a loan is less than $150,000, the loan amount will be forgiven as long as the borrower completes a one-page form and submits certain certifications to the lender.
If your loan is greater than $50,000, your loan forgiveness could be reduced depending on the number of employees and salaries that were beyond 25%. Also, have it in mind that borrowers are expected to maintain certain records related to employment for four years and other records for three years.
For funds above $150,000, records will have to be kept for six years. In all cases, SBA reserves the right to review and audit any PPP loan records for fraud later. Also note that not less than 60% of the PPP loan will have to be used for payroll costs to qualify for full forgiveness, same as with the first round of PPP.
The funds will also need to be used within 8 to 24 weeks of receiving your loan. Ideally, if borrowers fail to apply for forgiveness within 10 months after the last day of the covered period, PPP loan payments are no longer deferred.
2nd PPP Loan Forgiveness Documentation Requirements
For the payroll part of your PPP loan, you will be expected to make available documents from your payroll provider and show valid proof of paying employment taxes with IRS and state forms. Qualifying payroll costs tend to include salaries and wages, health benefits, and paid leave (i.e. vacation, parental, family, medical, or sick leave). To validate payroll costs you will have to make available:
- Payroll service reports documenting wages paid to the employee
- Federal payroll tax filings (IRS Form 941)
- Income, payroll, and unemployment insurance filings from your state
- Receipts for employer contributions to group benefit plans
- Receipts for any retirement plan contributions
A good number of modern payroll providers are known to provide PPP loan forgiveness reports that can be used on the application. Ensure to reach out to your provider first before manually evaluating any payroll cost or headcount numbers.
Property Damage Costs
For damages resulting from public disturbances in 2020 that were not covered by your business insurance, you can use your PPP funds to cater to any of these costs and have your loan forgiven. To show evidence of property damage costs you will have to provide:
- Copy of invoices, orders, or purchase orders paid
- Receipts canceled checks or account statements
- Documentation that the costs were used to repair or replace property damage and vandalism or looting due to public disturbances that occurred during 2020 and were not covered by insurance. For instance, correspondence with your insurance provider denying a claim should suffice.
Owner Compensation Replacement
Have it in mind that those who are self-employed (e.g. sole proprietors, independent contractors) and obtained owner compensation replacement can have their while loan forgiven to cover their lost earnings. Note that your bank account statements will have to be reviewed to verify that you have drawn your owner compensation replacement over the covered period.
You will also be expected to make available federal tax documentation detailing owner compensation in the past. Indeed, these documents are the same as what was used to apply for the PPP Loan. To validate owner compensation replacement payments, you will have to present:
- January to February 2020 Schedule C for sole proprietors
- January to February 2020 1099-MISC forms for independent contractors
- January to February 2020 Schedule K-1for partnerships
- Check images, OR annotated bank statement
This will include expenses related to business software or cloud computing service that helps to streamline business operations. These will most often include your payroll provider, inventory software, or an accounting or bookkeeping solution. To show proof of operation expenditures, the documents you need to provide include;
- Copy of invoices, orders, or purchase orders paid during the Covered Period
- Receipts, canceled checks, OR account statements verifying those eligible payments
Mortgage Interest Payments
Note that you are allowed to use this PPP loan to cover the interest portion of any payments you made towards a mortgage that was in place before February 15, 2020. Either an amortization table or mortgage account statements will have to be made available to validate the interest portion of the payments.
Also, note that monthly statements will need to be provided by your lender either by mail or via an online portal. You will also need to show proof of payments and this can be done with payment receipts or by indicating payments on your bank account statement. To validate mortgage interest payments, you will have to provide:
- Mortgage amortization table, or mortgage account statements
- Payment receipts, OR annotated bank statements
According to the SBA, all utility costs earned by your business can be covered with the PPP. Qualifying utility expenses may include electric, gas, water, telephone, or internet costs. Also, note that all utility bills in the business name can be used as supporting documentation with your proof of payment (payment receipts or indicated on bank statements). To make sure you verify utility payments, you will have to provide the following:
- Monthly utility statements
- Payment receipts, OR annotated bank statements
Also note that you can use the PPP to cover any payment that has to do with your business rent or lease that was in place before February 15, 2020. According to SBA, a rent or lease agreement in the business name will have to be made available coupled with monthly payment statements and proof of payment (payment receipts or indicated on bank statements). To verify rent/lease payments, provide the following:
- Rent/lease agreement
- Monthly payment statements
- Payment receipts, or annotated bank statements
Agreeably, your PPP loan can be used to see to costs relating to the supply of goods as far as they concur with the following conditions:
- The purchase is very vital to the operations of the borrower at the time at which the expenditure is made; and
- The purchase is made according to a contract, order, or purchase order:
- Was already in place before the covered period; or
- As regards perishable goods, in place before or at any time during the covered period with respect to the applicable covered loan
To validate supplier cost you will be expected to provide:
- Copy of contracts, orders, or purchase orders in effect at any time previous to the loan cover period (except for perishable goods)
- Copy of invoices, orders, or purchase orders and receipts, canceled checks, or account statements
Worker Protection Expenditures
If you need to purchase protective equipment or improve your business to remind COVID compliance, keep in mind that you can leverage your PPP loan to see to these expenses.
However, these expenses will have to be made to comply with requirements stipulated by the Department of Health and Human Services or any requirements noted by a State or local government, during the period beginning on March 1, 2020, and ending the date the national emergency (related to COVID-19) expires. These expenses may include:
- The acquisition, maintenance, or repair of assets that create or expand (drive-through window; air pressure ventilation; physical barrier; health screening)
- The acquisition of protection materials, facepiece respirators, and other numerous personal protective equipment
To show proof of worker protection expenditures, you will have to provide:
- Copy of invoices, orders, or purchase orders
- Receipts canceled checks, or account statements verifying those eligible payments
- Documentation that the expenditures were used by the Borrower to comply with applicable COVID-19 guidance during the Covered Period