How to Get PPP Round 2.0 Money and Government Help for Your Health Club

By Eric Killian, The Fitness CPA Dec 28, 2020 8:28pm

This article originally appeared on The Fitness CPA website. It has been edited for space and style.

If you’re here, then you’re a fitness business operator who needs information about how the recently passed and signed coronavirus relief bill impacts your business and how to get the most upside from it. The new bill includes about $284 billion for the Paycheck Protection Program (PPP) of the CARES Act. This program, in case you don’t already know, offers forgivable loans to business owners.

But the bill has some complexities, so, let me give you the need-to-know information without all the confusing details. Here is the super short version:

Loan forgiveness process is simplified for borrowers with PPP 1.0 and 2.0 loans of $150,000 or less. Wait to complete the application.
PPP borrowers do not reduce their forgiveness amount by any EIDL advances received.
Expenses paid with PPP 1.0 and 2.0 funds are fully deductible and PPP funds received are tax-exempt income.
PPP 2.0 includes a second draw option for prior PPP borrowers who have sustained a 25 percent revenue loss in any quarter of 2020 as compared to 2019.
SBA 7a loan payments that were made on behalf of borrowers for six months in 2019 are tax-exempt income.
SBA 7a loan payments will be made on behalf of borrowers for three more months beginning Feb. 1, 2021 (and are also tax-exempt income).
Targeted EIDL Grant for $10,000 – if you did not receive it, you may apply for it (stipulations apply).
The potential for new or increased EIDL loans remains unclear as of Dec. 22, 2020.
Expanded and Retroactive Employee Retention Credit – a bit unclear but guidance is forthcoming.

What We Know

There will be a new round of PPP 2.0 applications, new PPP forgiveness forms and additional guidance on all of the bullet points above. Some of these items will continue to evolve. (Stay tuned by subscribing to our newsletter, Youtube Channel, and liking our Facebook page for updates.)

For now, here are the specifics. The PPP loan forgiveness process is simplified for borrowers with PPP 1.0 and 2.0 loans of $150,000 or less. I’ve been saying this would happen for months and have repeatedly advised borrowers to not complete the PPP application.

Here is why you should and shouldn’t complete the PPP application. The new application will be simple and painless. We expect the Small Business Administration (SBA) to have the new forgiveness application in January 2021. It’s a simple one-pager with:

Description of number of employees that the borrower was able to retain because of the loan.
Estimated amount of loan spent on payroll costs.
Total loan value.

We’ve previously seen the goalposts on PPP get moved closer over the past nine months. This is the fourth forgiveness application, and it’s gotten easier every time. Here’s hoping there is not a fifth application.

Wait for the new PPP forgiveness application and do not complete the PPP app if:

If you don’t like paperwork.
If you have an EIDL loan. PPP 1.0 forgiveness was originally supposed to be reduced by the EIDL Grant (of up to $10,000) that you received. Well, not anymore. That’s a $10,000 swing. I feel bad for anyone reading this who rushed to complete the forgiveness application earlier who had an EIDL loan.
If your loan is greater than $50,000 but less than $150,000. Loans in this range were previously required to file the EZ application, which wasn’t very “easy.” Although not terrible, it wasn’t as simple as many would have liked. Now borrowers in this loan amount range can fill out the simple one-page forgiveness form.

Complete one of the current PPP forgiveness applications and do not wait if:

Your loan is less than $50,000 and you don’t mind submitting some paperwork to the lender (each lender has been requesting different evidence), and you do not have an EIDL loan. But at this point, who doesn’t have an EIDL loan? Don’t have one? You should consider applying.
Your loan is greater than $150,000, which is still subject to the existing rules. Nothing has changed here so you might as well proceed as this likely won’t change.
There are no other considerations regarding PPP forgiveness for fitness businesses other than those listed here. If I’ve missed something or you have a unique situation, email me and I’ll answer your question.

Expenses paid with PPP 1.0 and 2.0 funds are fully deductible, and PPP funds received are tax-exempt income. It took an act of Congress to correct the U.S. Treasury’s misinterpretation of the original Cares Act, but we finally have it. Rather than reducing expenses as previously determined, the forgiven PPP funds are now tax-exempt income. That means a lower tax bill this year for all PPP recipients and a little more work for you or your tax accountant at tax time, but well worth the hassle.

Paycheck Protection Program (PPP 2.0)

This is the main headline that everyone is talking about. More PPP funds for those in need. The new PPP has $284 billion in new funds, including a second draw option for prior PPP borrowers. So what do you need to know?

How and when to apply: Applications are expected to be available around the end of the year or the start of the new year. The systems are already in place to do this, but I’ll believe it when I see it. With the holidays here, I think the first or second week of January is more likely. As with PPP 1.0, we expect banks to be issuing PPP 2.0 loans (rather than the SBA issuing them directly like they did the EIDL loans). If banks are issuing them, we recommend using a smaller local bank or the lender you had luck with previously. We don’t expect as much of a rush this time around due to the stipulations borrowers have to meet. (See more details below.)

Who qualifies for PPP 2.0: If you are reading this, there is a big chance you qualify. But many fitness business operators, such as many one-on-one personal trainers and those who pivoted early to a virtual or hybrid offering, have been steady or even grown their business through the pandemic. To qualify, you must:

Have been in business as of Feb. 15, 2020.
Have less than 300 employees.
Demonstrate at least 25 percent reduction in gross receipts in first, second and third quarter of 2020 as compared to the same 2019 quarter. Applications submitted after Jan. 1, 2021, can use fourth quarter 2020 gross receipts and compare them to fourth quarter 2019.

There are special rules for businesses not in operation in 2019. Anti-bankruptcy rules will continue to apply. Borrowers in bankruptcy will not be able to apply for a PPP loan based on the provisions of the proposed bill. If in the bankruptcy process a court finds that the debtor is eligible for a PPP loan, then the loan will be given a priority claim in the bankruptcy process.

How much money: The calculation for how much money you can get will seem familiar to many. For fitness businesses, the amounts will be calculated as the greater of either 2.5 times the average monthly payroll for the 2019 calendar year (Jan. 1, 2019, to Dec. 31, 2019) or 2.5 times the average monthly for the preceding 12-month period prior to the date of your application.

This means that if your payroll costs have gone up in 2020, you may benefit from the alternative calculation. For most borrowers, this won’t be the case because in order to qualify, it means business receipts are down by more than 25 percent, and it would be unusual for this to happen in conjunction with increasing payroll costs—but it is possible. So do the math for the maximum PPP 2.0 amount allowed by law.

Entities in industries assigned to NAICS code 72 (Accommodations and Food Services) may receive PPP loans of up to 3.5 times average monthly payroll costs. Unfortunately, fitness businesses are not included in the 3.5 times bucket. The fitness lobbying groups really missed out on this one. I cannot believe with all the restrictions that recreation services were not included here, and it pains me to deliver this news while restaurants had the ability to do takeout and delivery. I know accommodations and food services are struggling, but this was a big miss in my opinion.

SBA Loans

SBA 7a loan payments that were made for six months in 2019 are tax-exempt income. This one was a pleasant surprise. Many fitness business owners who have built out locations have SBA 7a loans where the SBA made those payments for six months in 2020.

SBA 7a loan payments will be made for three more months beginning Feb. 1, 2021 (and are also tax-exempt income). For many people with 7a loans, this is a welcome reprieve from loan payments that were reactivated in September or October 2019. Payments will be due in January and again in April.

For those who are having difficulty making loan payments, a provision included in the bill permits SBA 7a loans to be deferred for up to one year on an as-needed basis. Deferrals are not hard to obtain when working with your lender. We have clients who have already been through the process and have been approved. So if cash is tight, look into this to give you more runway in 2021.

If you did not receive the targeted EIDL grant for $10,000, you may be able to apply for it. Many people did not request it, received partial amounts, or requested the funds but funds ran out. The grant has a lot of stipulations, but it’s possible to still obtain the $10,000 EIDL grant if you:

Previously applied for an EIDL loan
Have 25 or fewer employees
Suffered an economic loss of 30 percent or more
Are located in a low-income community as the term is defined in section 45D(e) of the Internal Revenue Code of 1986.

The potential for new or increased EIDL loans is unclear at this time.

For many in the fitness industry, the maximum $150,000 EIDL loan has been barely enough or not enough to keep them afloat. Funds have been allocated to the EIDL program; however, they seem to be largely around the $10,000 grant and continuing the existing $150,000 EIDL offering. Although we were hoping for EIDL 2.0, the laws remain unclear. I remain hopeful many clients can obtain additional funding, but as of today that doesn’t seem to be the intent of the EIDL funding in this bill.

Expanded and Retroactive Employee Retention Credit

Previously, this program could not be used in conjunction with a PPP loan, but the new law states that it can now be used in conjunction with PPP. A lot needs to be clarified here and the SBA must release guidance within 17 days of the laws passing, but what we’re seeing currently is that a credit may be available during a quarter if your business was forced to close at any point during the quarter and/or revenues were reduced by 50 percent and you paid employees’ wages during this period (and wages paid with PPP funds don’t count).

We’ll wait on more guidance before we make the final call on this one, but the verbiage seems to suggest we can go back to the second and third quarter of 2020 to claim this credit and all the way through June 30, 2021. This seems generous although we suspect the guidance provided by the U.S. Treasury may narrow the applicability of this opportunity. Amending payroll reports to claim this credit is a lot of work, but for many, it might be worth the investment.

Overall, there is a lot of good news here, and there seems to be something for everybody who continues to struggle through the pandemic.

A friendly reminder to be kind to your bankers, your accountants and CPAs as we fully expect conflicting reports and clarifying guidance, and we will be working over the holidays and new year to keep you up to date. And just as a general rule, be kind. This year has been hard on everyone.

As for your Congressional representatives: continue to give them hell. They sat on their butts, collected big paychecks and did insider trading on the backs of working-class Americans and small business owners while you waited nine months for help during a global pandemic.

If you have questions, we’re here to answer them as fast as we’re able. For clients, just email me. For non-clients, please fill out our contact us form, include your question and we promise to answer it with no strings attached.

We believe in this industry, and we believe in you. Our first company value is “Give First” and to figure out the rest later. We intend to continue helping as many fitness business owners as possible through this crisis.

For more information, you can check out our sources here:

BIO

Eric Killian is a CPA and founder of The Fitness CPA. He is an accountant, husband, father, mountaineer. Fitness is a big part of who he is. Maintaining a healthy lifestyle, eating well (mostly paleo), hiking, backpacking, mountaineering, practicing yoga and Crossfit are all important cornerstones of life. But he loves ice cream and cookies too much to say no. He loves helping owners make sense of their business and finding ways to grow it. It’s an honor for him to help business owners see situations, scenarios and opportunities from all sides so you can make informed decisions.

The editorial staff had no role in this post's creation.

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