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PPP 2.0: Can businesses that were not operational in 2019 use 01/01/2020-02/29/2020 period for average payroll cost calculations?

Personal Finance & Money Asked on March 17, 2021

Official SBA PPP 1.0 FAQ had this answer:

  1. Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan
    amounts?

Answer: In general, borrowers can calculate their aggregate
payroll costs using data either from the previous 12 months or from
calendar year 2019. For seasonal businesses, the applicant may use
average monthly payroll for the period between February 15, 2019, or
March 1, 2019, and June 30, 2019. An applicant that was not in
business from February 15, 2019 to June 30, 2019 may use the average
monthly payroll costs for the period January 1, 2020 through February
29, 2020. Borrowers may use their average employment over the same
time periods to determine their number of employees, for the purposes
of applying an employee-based size standard. Alternatively, borrowers
may elect to use SBA’s usual calculation: the average number of
employees per pay period in the 12 completed calendar months prior to
the date of the loan application (or the average number of employees
for each of the pay periods that the business has been operational, if
it has not been operational for 12 months).

Are newly established businesses that don’t have any 2019 documents still allowed to pick 01/01/2020-02/29/2020 period for PPP 2.0 average payroll cost calculation purposes?

If not, this seems like brutal omission in PPP 2.0 rules, because it creates two weird situations:

  1. Since gross receipts for businesses established in early 2020 are literally undefined for tax year 2019, then how could such recently established businesses ever testify that their gross receipts in 2020 dropped by 25% compared to corresponding quarter in 2019?
  2. Those businesses that complied with California’s AB-5 and on January 1, 2020 reclassified 1099-MISC workers into W-2 employees have effectively disqualified their "misclassified" employees from letting them to apply for PPP on their own. And in addition government under PPP 2.0 rules is asking these employers to dilute payroll costs for these employees reported on 2020Q1 941 form not just over first 2 months of 2020, but rather all 12 months of 2020.

One Answer

I think the answer is yes, but I'm not sure, because SBA's answer is worded confusingly. Is the following sentence for any business, or for seasonal businesses only?

An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020.

I think this sentence applies to any business, including yours. To summarize what SBA is saying,

  • Only businesses that were blindsided by the pandemic are eligible, i.e. businesses that were operating on Feb. 15, 2020
  • They have extra flexibility for seasonal businesses

Answered by Orange Coast- reinstate Monica on March 17, 2021

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