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PPP2 – How to Calculate Revenue Reduction and other tips

PPP2 Criteria

PPP2 is rolled out and we are excited 🙂 Here us how to Calculate Revenue Reduction for PPP2 and other tips to get a PPP2 loan. We go over PPP2 Application Criteria, How much you can borrow and Forgiveness Criteria.

Here is a video with some slides in case you are visual person 🙂

PPP2 – How to Calculate Revenue Reduction

The biggest change from PPP1 is that now there is a criteria around having a 25% reduction in revenue comparing 2020 to 2019 by Quarter or for the Year.  This is a pretty specific criteria so we have been getting a lot of questions on it.  Here is what we are telling people –

  1. Currently no guidance on cash or accrual accounting – calculate it both ways to see if either show a 25% drop
  2. More guidance may come to calculate based on how you report taxes but in our opinion it is not worth waiting to apply
  3. The Formula = (Q1 2020 – Q1 2019) / Q1 2019

PPP2 Other Criteria

  1. Fewer than 300 employees
  2. Already obtained a PPP1 Loan and have plans to use it on approved expenses
  3. Must be in operation on February 15, 2020.
  4. Not publicly traded or associated with China
  5. March 31, 2021 is the application deadline for a PPP2 loan.

How much can you borrow?

It is pretty similar to PPP1 in that it is based on your average payroll, which can be calculated by taking your total payroll costs and dividing by 12.  Here are how to calculate the total amounts –

  • 2.5 times average monthly payroll
  • 3.5 times for motels and restaurants NAICS line of business code of 72
  • The maximum is $2 million (it was $10 million under “PPP1”).

It is our guess that banks and potential auditors are expecting this amount to be the same as your PPP1 amount.  If it is different you should have a really good reason to change it.

Forgiveness Criteria

The forgiveness criteria is very similar to PPP1 with a few additinal items that can be included in the “other” expenses bucket.

  1. 60% percent of the PPP2 loan must be spent on Payroll.  There is still $100K CAP
  2. Less than 40% can be spent on “other” category of expenses including  rent, mortgage interest and utilities.
  3. New Items in “Other” for PPP2
  4. Payments for software, cloud computing, HR systems, and accounting needs
  5. Repair costs associated with looting or vandalism not covered by insurance
  6. Essential goods before the PPP2 loan was received and perishable goods before or after the PPP2 loan
  7. PPE and facility expenses for COVID-19 health and safety guidelines – HVAC, Drive Through Windows, Sneeze Guards
  8. You can use an 8-week or a 24-week forgiveness period
  9. Note new PPP1 forgiveness form coming soon – expected end of January

Next Steps

Look for emails from your bank that you applied to for PPP1 on the steps to apply.  At the time of this article most small banks are accepting applications and most big banks are about to release their online forms for people to apply through.  As soon as your bank is ready I would apply in case the funds run out but based on the slightly stricter criteria and capping the loan size the money should last longer this time.

We are also excited to know that we have 24 weeks instead of 8 this time so we may be able to be more strategic on how we spend the loan so that it is fully forgiven but do not feel pressured to spend it as quickly as possible – it is kind of like getting a do over on how you wish you would have spent PPP1.

If you need help or have questions, Finance Pals would love to give you some free tips and advice over a 30 minute phone call. We love all things Finance, whether it’s bookkeeping, accounting, FP&A, fractional CFO responsibilities or taxes and want to share our knowledge with you!

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