Introduction
In response to the economic impact of the COVID-19 pandemic, the U.S. government introduced the Paycheck Protection Program (PPP) to provide financial assistance to small businesses. The second round of PPP loans, also known as Second Draw PPP loans, are available to eligible businesses that have experienced a 25% reduction in revenue in 2020 compared to 2019. In this article, we will discuss how to calculate the 25% revenue reduction for Second Draw PPP loans.
Determine Your Gross Receipts
The first step in calculating the revenue reduction is to determine your gross receipts for the relevant time period. Gross receipts include all revenue received from sales of goods or services, interest, dividends, rents, royalties, and any other sources. You can find this information on your tax returns or in your accounting records.
Compare 2020 to 2019 Gross Receipts
Once you have determined your gross receipts for both 2020 and 2019, you need to compare them to see if there is a 25% reduction. To calculate the reduction, subtract your 2020 gross receipts from your 2019 gross receipts, and divide the result by your 2019 gross receipts. If the resulting percentage is equal to or greater than 25%, you meet the revenue reduction requirement for a Second Draw PPP loan.
Example
Let's say your gross receipts in 2019 were $500,000 and in 2020 they were $375,000. To calculate the reduction, subtract $375,000 from $500,000 to get $125,000. Then, divide $125,000 by $500,000 to get 0.25 or 25%. This means you meet the revenue reduction requirement for a Second Draw PPP loan.
Special Rules for Businesses Not in Operation in 2019
If your business was not in operation in 2019 but was in operation on February 15, 2020, you can use the period from January 1, 2020, to February 29, 2020, to calculate your gross receipts. You can then compare this period to any quarter in 2020 to determine if there was a 25% reduction.
Conclusion
Calculating the 25% revenue reduction for a Second Draw PPP loan is crucial for small businesses seeking financial assistance during these challenging times. By following the steps outlined in this article, you can determine if you meet the revenue reduction requirement and proceed with applying for a Second Draw PPP loan.
Disclaimer
This article is for informational purposes only and should not be construed as legal or financial advice. We recommend consulting with a qualified professional for guidance on your specific situation.
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