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Tennessee Bankers AssociationPaycheck Protection Program - Round 2Questions and AnswersWhat will be considered acceptable documentation for gross receipts/gross sales/gross income by the SBA when determining if a customer had a 25% reduction in a particular quarter?The SBA has issued guidance stating that the following are the primary sets of documentation Applicants can provide to substantiate their certification of a 25 percent gross receipts reduction (only one set is required):Quarterly financial statements for the entity. If the financial statements are not audited, the Applicant must sign and date the first page of the financial statement and initial all other pages, attesting to their accuracy. If the financial statements do not specifically identify the line item(s) that constitute gross receipts, the Applicant must annotate which line item(s) constitute gross receipts.Quarterly or monthly bank statements for the entity showing deposits from the relevant quarters. The Applicant must annotate, if it is not clear, which deposits listed on the bank statement constitute gross receipts (e.g., payments for purchases of goods and services) and which do not (e.g., capital infusions).Annual IRS income tax filings of the entity (required if using an annual reference period). If the entity has not yet filed a tax return for 2020, the Applicant must fill out the return forms, compute the relevant gross receipts value, and sign and date the return, attesting that the values that enter into the gross receipts computation are the same values that will be filed on the entity’s tax return.The applicant (an LLC) filed Articles of Organization for a LLC on 2/18/2020 which was after the PPP date of operation requirement of 2/15/2020 (Round 1). A written statement from the borrower indicates the LLC entity was established 1/1/20. The LLC was formed based on the tax advice of a CPA. The shares of the LLC are owned by an individual who in 2019 reported the financial information on a Schedule C as a sole proprietor. Is the LLC eligible for any monies from Round 1?A borrower must have been in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC or it was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees.The borrower is required to submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount.If an owner of the Applicant is presently involved in a Chapter 11 Bankruptcy, is the applicant prohibited from receiving PPP monies?The IFR explicitly provides that if the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed, the applicant is ineligible to receive a PPP loan. The Borrower Application Form for PPP loans (SBA Form 2483), which reflects this restriction in the form of a borrower certification, is a loan program requirement. Lenders may rely on an applicant’s representation concerning the applicant’s or an owner of the applicant’s involvement in a bankruptcy proceeding.If a customer elects to add his EIDL loan amount to his next PPP – will the dollar amount of the EIDL loan be forgiven once the customer applies for forgiveness knowing that those dollars went to pay off the EIDL loan, or will be bank be left holding that balance on our books with a 1% loan rate?Refinancing of an SBA EIDL loan made between January 31, 2020 and April 3, 2020 is a permissible use of PPP funds and will be eligible for forgiveness if other criteria or satisfied (e.g., 60% used for payroll)The Economic Aid Act repealed the CARES Act provision requiring SBA to deduct EIDL Advance Amounts received by borrowers from the forgiveness payment amounts remitted by SBA to the lender. The EIDL Advance Amount received by the borrower will not reduce the amount of forgiveness to which the borrower is entitled and will not be deducted from the forgiveness payment amount that SBA remits to the lender. Any EIDL Advance Amounts previously deducted from a borrower’s forgiveness amount will be remitted to the lender, together with interest to the remittance date.We have a hotel customer that opened in December 2019. Typically hotel openings are soft and this group was never able to get up and going before COVID hit in early 2020. Is there any relief for a company like this? In addition, the hotel received $200,000 in the first round of PPP.Any borrower who received a PPP loan in 2020 received a First Draw PPP Loan and is not eligible to receive another First Draw PPP Loan, but may be eligible for a second draw PPP loan.Do HHS Grants received by healthcare providers in 2020 considered gross receipts in the 25% gross receipts test?Unclear. The IFR provides that “gross receipts” include all revenue in whatever form received or accrued in accordance with the borrower’s method of accounting. Gross revenue isn’t reduced by cost of sales but is reduced by returns and allowances. Any First Draw PPP loan that’s forgiven in 2020 is not included in 2020 gross receipts. However, current SBA guidance doesn’t include other CARES Act relief funds in this exclusion.What if a customer returned their loan from last year but need it now? Is it a first or second draw loan?If a borrower returned (or repaid) part of a First Draw PPP Loan, the Lender reported to SBA before December 27, 2020 that the borrower repaid the loan in part, and SBA has not remitted a forgiveness payment to the Lender on that loan, the Lender of Record may approve a borrower’s request for a loan increase and re-disburse funds equal to the difference between the amount retained by the borrower and the amount previously approved. After re-disbursing the loan increase amount, the Lender must ensure that the loan amount and status are correctly reported on the next 1502 report submitted by the Lender.For a second draw, does the borrower have to have applied for first draw forgiveness?No. The Economic Aid Act provides that a Second Draw PPP Loan may only be made to an eligible borrower that (i) has received a First Draw PPP Loan, and (ii) has used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower.Does a quarter have to be based on a calendar quarter or can it be any consecutive three month period?Generally speaking, the borrower must use calendar quarter to demonstrate the required 25% reduction in gross receipts. However, an applicant that was in operation in all four quarters of 2019 is deemed to have experienced the 25% revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.If using 2019 payroll figures for loan calculation, are any further documents needed for second draw loans?At the time an applicant submits its loan application form, it must submit the following unless the documentation was submitted to the lender for the First Draw PPP Loan:If the applicant is not self-employed, the applicant’s Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s.If the applicant is self-employed and has employees, the applicant’s 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1040 Schedule C, Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate loan amount), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, if applicable, must be provided. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the applicant was in operation on February 15, 2020.If the applicant is self-employed and does not have employees, the applicant must provide (a) its 2019 or 2020 (whichever was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020.Does the quarter have to be the same for 2019 and 2020?For Second Draw loans, the SBA rules generally require that a borrower have experienced a reduction gross receipts during the first, second, third, or fourth quarter in 2020 that demonstrate at least a 25 percent reduction from the applicant’s gross receipts during the same quarter in 2019. However, certain exceptions are provided for businesses that were not in operation for all of 2019. The 25% reduction in gross receipts can be satisfied if:the applicant was not in business during the first or second quarter of 2019, but was in business during the third and fourth quarters of 2019, the applicant had gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the applicant’s gross receipts during the third or fourth quarter of 2019;the applicant was not in business during the first, second, or third quarter of 2019, but was in business during the fourth quarter of 2019, the applicant had gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the fourth quarter of 2019; orthe applicant was not in business during 2019, but was in operation on February 15, 2020, the applicant had gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the gross receipts of the entity during the first quarter of 2020.For the requirement, how do you submit your “unique identifier” to the SBA and what exactly is a “unique identifier”?A Unique Entity Identifier (“UEI”) will be provided to banks by after registration. A UEI is a unique number assigned to all entities (public and private companies, individuals, institutions, or organizations) who register to do business with the federal government.If using 2020 figures for the loan calculation, are borrowers required to submit 2020 quarterly 941s and W3s?A borrowers must provide its Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever you used to calculate loan amount), or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions.What if a borrower started their business in November 2019 and received a PPP loan in the first round? How do they determine if they have a 25% decrease in sales when they have no records to prove anything?If the borrower was not in business during the first, second, or third quarter of 2019, but was in business during the fourth quarter of 2019, the borrower must demonstrate at least a 25 percent reduction that in gross receipts during the first, second, third, or fourth quarter of 2020 from the fourth quarter of 2019.Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.For businesses that were open before February 15, 2020, but did not have a full quarter of operation in the first quarter of 2020, can the business prorate first quarter revenues when comparing to subsequent 2020 quarters for calculation of revenue reduction?Unclear. The SBA rule does not address proration in calculated reduction of gross receipts. The rule provides that if the applicant was not in business during 2019, but was in operation on February 15, 2020, the applicant is eligible if it had gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the gross receipts of the entity during the first quarter of 2020.If a customer purchased a business in the third quarter of 2019, would the current owner use the revenue from the business prior to their ownership in order to compare the revenue reduction?Yes. The SBA rules do not address change of control issues prior to February 15, 2020.Do all borrowers have to submit a written certification that the loan is needed?Both the First Draw and Second Draw application require applicants to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”How will banks know if their borrower applies for the Shuttered Venue Operators grant and comes to the bank for a PPP second draw?A borrowers are required to certify that it has not and will not receive a Shuttered Venue Operator grant from SBA.Are wages paid to H-2A workers eligible for calculating loan amount and eligible expenses for forgiveness?PPP applicants and lenders may consider IRS regulations (26 CFR § 1.121-1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States. IRS regulations provide that determining an employee’s principal residence is a facts and circumstances test. According to the IRS, relevant factors in determining a taxpayer's principal residence, include, but are not limited to:the taxpayer's place of employment;the principal place of abode of the taxpayer's family members;the address listed on the taxpayer's federal and state tax returns, driver's license, automobile registration, and voter registration card;the taxpayer's mailing address for bills and correspondence;the location of the taxpayer's banks; andThe location of religious organizations and recreational clubs with which the taxpayer is affiliated.IFR states that for farmers/ranchers they can use gross profit as opposed to net income. Is that for first and second draws? So basically if a farmer/rancher has a net loss YoY, they can still apply based on gross profit, correct?The SBA has addressed this issue in Revenue Reduction - Question 5 and Maximum Second Draw PPP Loan Amounts - Question 3 of Second Draw Paycheck Protection Program (PPP) Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide ( )How soon can a bank request the SBA to purchase the PPP loan if the borrower does not get forgiveness and does not repay?Unclear. The Lender Agreement provides that, by making any written demand that SBA purchase the guaranteed portion of a loan, Lender will be deemed thereby to certify that the covered loan has been made, closed, serviced, and liquidated in compliance with the Paycheck Protection Program and PPP Loan Program Requirements. Loans guaranteed under the Paycheck Protection Program are 100 percent guaranteed by SBA, and the full principal amount of the loans may qualify for loan forgiveness. Additional guidance from the SBA on this topic should be forthcoming. ................
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