2020 has been a difficult year for businesses, thanks to the global COVID-19 pandemic. And small and medium-sized companies have been particularly defenseless.
The stats show that more than 100,000 U.S businesses have shut down since the beginning of the COVID-19 pandemic, but many businesses are still fighting to keep their doors open.
There is some good news on the horizon for salon owners and other small businesses, though. Thanks to the new stimulus bill that has been approved for second draw Paycheck Protection Program (PPP) loans from January 2021.
PPP loans were designed to incentivize small businesses to keep employees on their payroll through this economic recession.
And this new COVID-19 relief bill includes updates to the PPP. But applicants must get organized quickly, as they need to apply by March 31, 2021.
This new Paycheck Protection Program extends 100% forgivable loads to independent contractors, 1099 workers, salon owners, booth renters, salon suite owners, and renters, and sole proprietors. The new stimulus bill provides relief by clarifying that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is subsequently forgiven.
Salon owners can use the money for critical operation costs to stay afloat, and they can apply for a second loan if utilized before.
Let’s take a closer look at the details of the new stimulus bill:
Who Can Apply for These Loans?
Salon owners and other business owners can apply through any federally insured bank or credit union.
These institutions should be able to explain the application process in full. Those who can apply for these loans include:
- Professionals in operation on February 15, 2020
- Businesses harmed by the COVID-19 pandemic
- The documentation must be submitted as part of the loan application
How Much Can Be Borrowed?
As a first-time PPP borrower, the maximum you can borrow is 2.5 times your average monthly payroll costs – and up to a maximum of $10 million.
Business owners can also add to the loan amount the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 less any ‘advance’ that is forgivable under this type of loan.
How to Calculate the PPP Loan Amount
If you want to find out how much you can borrow, here’s what you need to do.
- Add up your total payroll costs for the applicable 12-month period. (Exclude any portion of compensation over $100,000 per year.
- Calculate your average monthly payroll costs by dividing your total payroll costs by 12.
- Multiply your average monthly payroll costs by 2.5.
- Add the outstanding amount of any Economic Injury Disaster Loan made between January 31, 2020 and April 3, 2020, less any ‘advance’ that is forgivable under any EIDL COVID-19 loan.
- The total amount you get from this is the maximum you can receive for a PPP loan, up to $10 million.
Of course, when it comes down to it, depending on your situation, there may be other factors that affect the amount when you actually apply for your loan.
What Amounts are Eligible for PPP Loan Forgiveness?
Luckily, for first-time borrowers and second draw PPP loans of up to $150,000, the process has been simplified. Business owners need to complete a certification, which includes describing the number of employees retained, estimating the amount of the loan spent on payroll, and listing the total loan value. Simple as that.
The PPP Flexibility Act extended the original PPP loan forgiveness period of 8 weeks. This new stimulus bill allows business owners to choose a time period of between 8 and 24 weeks after the loan is made.
Because the PPP helps business owners maintain payroll, for the loan to be forgiven, the bulk of the loan must be used for payroll. At first, the bulk percentage was 75%, but it has been reduced to 60%.
If you qualify, you may be eligible to have the entire loan amount plus accrued interest forgiven.
But the amount will depend on the total amount spent over the covered period on the following:
- Salary, wages, and tips of up to $100,000 of annual pay per employee
- Covered benefits for employees
- Owner compensation replacement
- Payments of interest on mortgage obligations on real or personal property incurred before February 15, 2020
- Rent payment on lease agreements in force before February 15, 2020
How Can I Apply For a Second PPP Loan?
Second time’s a charm, and businesses who previously received an original PPP loan are eligible for a second draw if they meet these requirements:
- Having used or will use all funds from the first PPP loan
- Has no more than 300 employees
- Showing a reduction in gross receipts of 25% or more during any quarter in 2020 when compared to that same 2019 quarter
The only exception to calculating for second draw loans is that if your business has a NAICS code beginning in 72 (which is generally food service and accommodations businesses), you may qualify for a loan of 3.5 times average monthly payroll. Other businesses will qualify based on 2.5 times average monthly payroll as before.
What Expenses Can I Use My PPP Loan For?
Apart from the 60% that needs to be used for payroll costs, 40% can be used for your rent, expenses related to business software used to help your business during this period, and costs related to the purchase of Personal Protective Products.
For more specific information about your salon’s situation, it’s best to consult with a professional for financial advice. The Paycheck Protection Program is an excellent lifesaver for small businesses and salon owners. And, it is one way to show your employees that they are your top priority.