all you need to know to get the PPP2 (+ the racist add-on)
Updated as of 1.8.2021
DISCLAIMER: Kelli Loo CPA is not a loan officer, lender, employee of the government, or the state. All information below represents an interpretation of the CARES Act +Consolidated Appropriations Act 2021, and is not intended to be used as support or guidance for applying for a loan. Contact a financial advisor or other finance professional for application and financial related advice.
This blog is to inform you on how to get the PPP2 loan and all the new rules about it. I’ve also included the racist portion that may seem out of place, but I assure you it’s not. If you are here to learn about the loan, it’s important to me to incorporate the truth and give you salt with the sugar.
What is the PPP2 loan?
The PPP2 loan is the second round of the Paycheck Protection Program. It’s a massive fund that the government passed to help fund small businesses. The intent is to replace the wages that are hurting due to the pandemic.
This loan is not meant to replace your income. It is not to put money in your pocket, it’s to keep jobs and pay expenses that can’t be paid because of the pandemic.
But the most important part of this loan is that it’s FORGIVEABLE if spent correctly. Meaning you don’t have to pay it back at all, aka free $$$ to keep your business alive.
Who qualifies?
There were some changes from the original PPP loan; the new qualifications are:
Loss in sales requirement: Had a drop in gross sales during one quarter of 2020 in comparison to the corresponding quarter in 2019 (ex. Q1 of 2020 dropped by more than 25% in comparison to Q1 of 2019) - this requirement did not exist in the first round.
Self-employed individuals and small businesses with fewer than 300 employees (previously 500 employees)
Have used or plans to use all the funds from the first PPP loan received.
Must have been in business prior to February 15, 2020.
And here’s the racism: No businesses that are affiliated with China!
There is an anti-Chinese part of the PPP2 loan?
Yup. In section 311 of the Consolidation Appropriations Act 2021 there is a specific section that excludes entities that are affiliated with China to participate in the PPP loan. These are US operational companies that are somehow tied to China even in very minimal ways. Here are the 4 types of associations that won’t be allowed:
Created in or organized under the laws of China or Hong Kong even if they have US operations - under Title 13 Section 120.110(e) businesses owned by foreign owners but located in the US still qualify. The purpose of the loan is to receive relief for wages and to keep Americans off of unemployment, therefore if a foreign entity has US employees they are eligible to participate - all foreign entities except for one, China.
Has significant operations in China or Hong Kong - this could be a US company that happens to have an international branch or location. Simply because they are doing activity in China they can’t get this loan. Again, this is the ONLY country that is mentioned in the Act.
Has a Chinese owner of more than 20% interest - There are many instances where companies have a foreign investor or partner. In the case of China, the company can still be 80% US owned, fully operating in the US and providing only US jobs but still not be eligible for the PPP. While any other foreign owner with up to 100% ownership would qualify just fine.
Has a board member that is a Chinese resident - Board members are representatives of stakeholders in a business. They meet at regular intervals and discuss policies for corporate management and oversight. There could be so many valuable reasons to bring on a foreign international board member. Simply by having this one position that is not ownership OR management - an entire company would be disqualified from the PPP loan.
This legislation was passed days ago and punishes businesses that are associated with only ONE country out of hundreds. This is systemic racism. Systemic racism is not part of the past, it’s alive and well. We must recognize it, identify it and believe it exists.
People tend to want to turn a blind eye to systemic racism and feel that all of this is truly behind us. While these words are in plain sight and would not typically reach the average person because it’s covered up inside a 5,593 page bill.
This is why we need powerful people of color in the accounting industry and why we built Accountants of Color.
Here are some (of many) reasons why this is a major problem:
It only mentions China, if this was a foreign issue then it wouldn’t single out one country.
Companies are now incentivized to discriminate against involving anyone who is a Chinese Resident in their business - they are literally paid to do this now.
This Act punishes Americans that desperately need these PPP funds and will put many out of business for simply associating with Chinese Residents. Can you imagine the racism that will arise from imposing this Act for those business owners? Can you imagine the experience for those Chinese people?
The educators of the training I participated less than a day after the Act was passed suggested “firing all of your Chinese owners and board members to qualify for a loan that could keep your business afloat”
Many individuals who read this understood it as all Chinese people, meaning also Chinese-Americans. This will further the xenophobia and anti-Asian sentiment throughout our nation that we’ve experienced this year. Based on a study, 3 out of 4 Americans have an unfavorable view of China - this Act will solidify this and Asians will pay the price based on their race.
The most common responses from my white dominated field regarding this topic has been:
“It’s not true.” - Huh? The immediate denial without any basis is a common one unfortunately. I don’t know if it’s because you don’t want to believe it or you just want to pretend it wasn’t said. But I got citations to prove this is very true.
“It can’t be racist though! There has to be some other reason why!” - Yes, it’s absolutely racist. Trump has clearly expressed his feelings around blaming China for the pandemic and the current state of the US. There are explicit anti-Chinese portions of the Act and this is only one of them.
“This can’t be legal” It’s literally written in the law, I’m citing the law. Even if it’s challenged or changed later (which I’m sure it won’t be), by then the PPP funds will likely be gone.
Thoughts to leave you with…
What I will leave you with before resuming to PPP2 is to acknowledge and see systemic racism for what it is. Clear legal language that passed the House, the Senate and the President to be Anti-Chinese. This is our reality and this feeds into racism. It’s ingrained in our system and then pours into our every day moments of hate - like when people told me to go back to my country (I was born in the US) because the pandemic is my fault.
Just based on my recent experience, I was sitting in a training on this Act when a slide that says “All Chinese affiliated businesses are ineligible for PPP” and then encouraged CPAs to tell their clients to fire Chinese people. As a Chinese & Japanese-American I completely shut down and started having an anxiety attack - because I knew what all of this will mean for Asians and Asian-Americans.
Acknowledge that this is taking place. Be mad. Be sad. Share this blog and be aware that this fuels current day racism.
How much PPP2 can you receive?
Similarly to before, you can receive 2.5 months of wages but in contrast to the first PPP loan, you can use either the 2019 calendar year or the 12 month period before the date on which the loan was made. This changes depending on if you are seasonal or timing of opening your business.
NEW: Restaurants, hotels motels and certain food and lodging businesses will be able to receive 3.5 months of wages!
When can you apply?
As soon as banks allow, I would simply stay in touch with whomever you received your first loan from. It’s suspected it will take a couple weeks for the loan forms to trickle down from the SBA to the banks, currently we are waiting on guidance.
What costs can be forgiven?
Most people who take out this loan have the intent to receive forgiveness and avoid needing to pay it back.
The expenses that are covered must be incurred within 24 weeks of the day you received the loan.
Good news is that expanded what you can spend this on in order to maximize forgiveness:
Payroll expenses up to 60% of the total loan - NEW: now includes group life, disability, vision and dental insurance payments
Rent as long as the lease existed prior to February 15th, 2020
Mortgage Interest
Utilities expense
NEW Operations Expenditure - payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.
NEW Property Damage Cost - cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.
NEW Supplier Cost - expenditure made by an entity to a supplier of goods for the supply of goods that are essential to the operations of the entity at the time at which the expenditure is made; and is made pursuant to a contract, order or purchase order.
NEW Worker protection expenditure - expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human equivalent requirements established or guidance issued by a State or local government.
Should you take the loan?
With the new Act they’re also allowing the Employee Retention Credit even if you take the PPP2 loan. In the past it wasn’t allowed. What this means is…if you qualify there is really no reason to pass it up unless you want to lay off employees instead of keeping them on payroll.
I suggest the following:
Determine how much you’ll qualify for
Determine what expenses will need to take place for it to be forgivable (maintain employees, rehire, etc.)
Talk to your lender
FAQs
If I’m on unemployment can I take the PPP2?
As a self-employed person you can’t use both the PPP2 funds and receive unemployment in the same week. As unemployment will run out in March, you may be able to use later weeks to utilize the PPP2 funds after that time period.
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Written by Kelli Loo, Owner of Kelli Loo CPA, co-founder of Accountants of Color
