Minnesota PPP Loans – All you need to know

Applications are being accepted and processed as of January 15, 2021. The SBA just released a series of forms and guidance for the next round of the Paycheck Protection Program. We were proud to serve our communities in the first two rounds of PPP loans and now are doubling our efforts for the second draw loans and for those who qualify for their first draw.

If you want to submit an application for a Minnesota PPP loan, please contact us today.

PPP First Draw and Second Draw Application Forms

First Draw:

• Top Line Overview of First Draw PPP Loans
• Borrower Application Form

Second Draw:

• Top Line Overview of Second Draw PPP Loans
• Borrower Application Form

Overview of First Draw PPP Loans

The first draw loans provided significant relief to small businesses around the country in 2020. For the new round in 2021, there are some important changes that have impacts to our communities. Unlike PPP loans made prior to August 8, 2020, new first-time applicants, including farmers, will have the ability to use either 2019 or 2020 when calculating their maximum loan amount. The maximum loan amount remains the lesser of 2.5x average monthly payroll or $10 million.

Covered eligible expenses are expanded and now include:

• Payroll costs
• Rent
• Mortgage interest
• Utilities
• Operations expenditures
• Property damage costs
• Supplier costs
• PPE (worker protection) expenditures

Eligibility Requirements for First Draw PPP Loans

If you did not receive a PPP loan prior to August 8, 2020, you will have the ability to apply for a PPP First Draw Loan on or before March 31, 2021. Businesses will need to prove they were in operation on February 15, 2020, are not permanently closed, and are not excluded based on other ineligibility criteria.

Eligibility criteria:

• Fewer than 500 employees with exception for certain industries that meet the SBA’s alternative size standard (SBA 13 C.F.R. 121.201)
• A small business concern
• An independent contractor, self-employed individual, or sole proprietor
• A business, a 501(c)(3) tax-exempt nonprofit organization, a 501(c)(19) tax exempt organization, and a section 31(b)(2)(c) tribal business that employs no more than 500 employees or meets the SBA’s alternative size standard noted above

In addition to previous eligibility criteria, the Economic Aid Act included expanded eligibility for:

• Select 501(c)(6) organizations
• Housing cooperatives
• Destination marketing organizations
• Select nonprofit organizations with fewer than 500 employees that have a NAICS code beginning with 511110 or 5151

501(c)(6) organizations are eligible to receive a PPP Loan provided they do not derive more than 15% of their revenue from lobbying, lobbying activities make up less than 15% of the business’ total activity, lobbying activities did not exceed a cost of $1,000,000 during 2019, and the organization has fewer than 300 employees.

For purposes of expanded eligibility, housing cooperatives are defined in section 216(b) of the Internal Revenue Code.

Destination Marketing Organizations are eligible to receive a PPP Loan provided they do not derive more than 15% of their revenue from lobbying, lobbying activities make up less than 15% of the business’ total activities, lobbying activities did not exceed a cost of $1,000,000 during 2019, and the organization has fewer than 300 employees.

Loan Increase Request for First Draw PPP Loans

Loan increases are allowed for partnerships if the original PPP loan did not include compensation for partners, for seasonal employers, and in other circumstances laid out below.

Other PPP borrowers may be eligible to reapply or request an increase to their PPP loan amount if a borrower:

• Returned all of a PPP loan and is eligible under current PPP rules
• Returned part of a PPP loan
• Did no accept the full amount of an approved PPP loan

Overview of Second Draw PPP Loans

Second draw loans are generally subject to the same terms, conditions, and requirements of the First Draw loans including:

• The SBA guarantee percentage is 100%
• No collateral is required
• No personal guarantees are required
• The interest rate is 1.00%, calculated on a non-compounding, fixed rate
• The maturity is five years

As with the First Draw, entities may borrow 2.5x their monthly payroll cost or $2 million (whichever is less). A key change for the Second Draw is that businesses in the Accommodation and Food Services sector with NAICS code beginning with 72 (e.g., restaurant), may borrow 3.5 times its monthly payroll costs. The monthly payroll costs are based on either the 12-month period prior to when the loan is made, or calendar year 2019.

Eligibility Requirements for Borrowers for Second Draw PPP Loans

It’s important to understand the terms if you qualify for the Second Draw PPP Loan. Your business will need to satisfy all of the following items:

• Is a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a First Draw PPP Loan, veterans organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, or an eligible nonprofit news organization
• Has 300 or fewer employees;
  • Exception: A business with a NAICS code beginning with 72 and eligible news organizations with more than one physical location (and each location has no more than 300 employees)
• Experienced a revenue reduction of 25% or greater in 2020 relative to 2019
• Previously received a First Draw PPP Loan
• Intends OR has fully used the full amount of the First Draw PPP Loan on eligible expenses before the Second Draw PPP Loan is disbursed. This includes the full amount of any increase to the First Draw PPP loan made as part of the Economic Aid Act.
• The same affiliation rules apply to the Second Draw as the First Draw.

Excluded Entities

An entity that is ineligible to receive a First Draw PPP Loan is ineligible for a Second Draw PPP Loan. The Economic Aid Act also prohibits the following from receiving a Second Draw PPP Loan:

• Business primarily engaged in political or lobbying activities
• Business created under Chinese or Hong King laws or who has a Chinese resident on the business’ board of directors
• Registered foreign agents
• Entity that received a grant for shuttered business operators
• Entity where the President, Vice President, executive agency head, or member of Congress, or spouse of such person, holds a controlling interest in the company
• Publicly traded company
• Previous recipient of a Second Draw PPP Loan
• Entity that has permanently closed

Calculation of 25% Revenue Reduction

To be eligible for a Second Draw PPP Loan, your business must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. That revenue reduction is to be calculated as follows:

Gross receipts during the first, second, third, or fourth quarter in 2020 that demonstrate at least a 25% reduction from the applicant’s gross receipts during the same quarter in 2019. If you were not in business for a full calendar year or quarter in 2019, but were in operation on February 15, 2020, you still must demonstrate on a 25% comparable reduction in Q2-Q4 2020 to the comparison period (Q1-4 2019 or Q1 2020.)

If your business was not in operation for all four quarters of 2019, it is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019. We will need copies of annual tax forms substantiating the revenue decline.

Certifications to the SBA for the PPP Loans

It is important to know what certifications you are making to the SBA in connection with receiving the PPP loan.

1. Your business was in operation on February 15, 2020, has not permanently closed, and was either an eligible self-employed individual, independent contractor, or sole proprietorship with no employees, or had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
2. Current economic uncertainty makes this loan request necessary to support the ongoing operations.
3. The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the PPP rules. You must also certify that you understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold it legally liable (such as for charges of fraud).
4. Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, covered utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, with not more than 40% of the forgiven amount used for non-payroll costs. If required, you will provide to the lender and/or SBA documentation verifying the number of full-time equivalent employees on the borrower’s payroll as well as the dollar amounts of eligible expenses for the covered period following this loan.
5. You have not and will not receive another Second Draw PPP Loan.
6. You have not and will not receive a Shuttered Venue Operator grant from SBA.
7. The President, Vice President, executive agency head, or member of Congress, or spouse of such person, does not directly or indirectly hold a controlling interest in the business;
8. You are not a publicly traded company.
9. You certify that the information provided in the application and supporting documents and forms is true and accurate in all material respects.
10. You understand that the lender will confirm the eligible loan amount using required documents submitted and may share your tax information with SBA.

Other additional certifications that will be required include:

1. You have realized a reduction in gross receipts in excess of 25% relative to the relevant comparison time period and have provided (or, for loans greater than $150,000, will provide before seeking loan forgiveness) documentation substantiating the decline in gross receipts.
2. You received a First Draw PPP Loan and, before the Second Draw PPP Loan is disbursed, will have used the full loan amount (including any increase) of the First Draw PPP Loan only for eligible expenses.
3. No entity created or organized in China or Hong Kong owns or holds, directly or indirectly, 20% or more of the economic interest in the business.
4. The business is not a registered foreign agent.
5. The business is not primarily engaged in political or lobbying activities.