In this 4-minute read:
- Recent PPP rules updates permit NAICS category 72 (food/accommodations businesses) to request 3.5X your monthly average in a second draw PPP loan
- March 2021 updates for Schedule C (form 1040) applicants can use GROSS income, rather than net, as basis for loan calculation.
- What businesses fall under the NAICS code 72 category?
- How do I know if I’m eligible for a second draw PPP loan?
- Can I qualify for 3.5x my monthly average on a first draw loan if I fit into NAICS sector 72?
Food and accommodation businesses were the first businesses to be seriously impacted by the COVID-19 lockdowns and resulting financial impacts set due to the coronavirus pandemic. In an effort to provide more substantial relief for these vital businesses in 2021, the SBA has raised the maximum loan amount for PPP second draw loans for accommodation and food services businesses to 3.5 times their monthly average payroll expenses, rather than the standard 2.5X for other types of businesses.
In addition, the Biden administration implemented additional PPP rule changes as of March 2021 that may impact smaller food vendors, sole proprietors, and independent contractors that fall under category 72 NAICS even further. If you file a schedule C (form 1040), you are now allowed at your discretion to use your gross income (Schedule C line 7) rather than your net income (line 32) to calculate your max loan amount.
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How much more can hotels, restaurants, food trucks, or other food and accommodations business (NAICS code 72) borrow for a second draw PPP loan?
For 2021, any business that fits into the NAICS code 72 for food and accommodation businesses qualifies for a larger maximum loan amount for their second draw of the PPP loan. This new maximum loan is calculated at 3.5 times your average monthly payroll costs (up to $2 million). This is 40% more than businesses that calculate their max loans at 2.5X their monthly average.
You can determine your monthly average payroll costs by using your payroll averages (for sole proprietors, independent contractors, and self-employed individuals, your “income” counts as payroll expenses) from 2020 or 2019 (your choice). You’ll just take your total payroll costs from the year you choose and divide that by 12 to get your monthly average. Then you have your payroll amount that you can multiple by 3.5 to determine your maximum loan amount.
What recent PPP rule changes have potentially even more benefit for Schedule C applicants in NAICS category 72?
On February 22, 2021, the Biden-Harris administration announced PPP rule changes that now allow PPP borrowers who file using IRS Form 1040 Schedule C to use GROSS profits, rather than NET profits, to calculate their maximum PPP loan amount. This can have a huge impact on many smaller businesses and independent contractors, including those in the food and accommodations sector that fall under NAICS code 72.
Previously, using their “net” profit amounts, many potential borrowers (like smaller food vendors, carts, pop-ups, etc.) were unable to qualify for PPP loans since they didn’t earn enough “net” revenue to meet the $4800 minimum annual income for PPP loans. But with this recent rule change allowing GROSS income to be used as the basis for Schedule C borrowers’ maximum PPP loan calculations, many more people may qualify.
Learn more about the $4800 minimum revenue requirement for PPP loans.
Which businesses fit into the NAICS sector 72 category and can request 3.5X their monthly average for a second draw PPP loan?
Any business whose NAICS code begins with 72 fits into this accommodation and food services category and may request up to 3.5 times their monthly average payroll costs on their second draw PPP loan application.
Businesses that fit into this category include:
- Hotels and motels
- Casino hotels
- Bed and breakfast inns
- All other traveler accommodation businesses
- RV Parks and recreational camps
- RV parks and campgrounds
- Recreational and vacation camps
- Rooming and boarding houses, dormitories, and workers’ camps
- Food service contractors
- Mobile food services, food carts, food trucks
- Drinking places (alcoholic beverages)
- Restaurants and other eating places
How do I know if I’m eligible for a second draw PPP loan?
There are certain eligibility requirements that you must meet in order to apply for a second draw PPP loan. Those requirements are as follows:
- You previously received a PPP loan; and
- You used (or will use) the full amount of your first PPP loan on authorized expenses before your second draw loan is disbursed. (Note: Your first draw loan doesn’t need to be forgiven to qualify); and
- You have 300 or fewer employees; and
- Your business experienced a revenue reduction of 25% or greater in any quarter in 2020 compared to 2019
For more details on second draw PPP eligibility, visit our Second draw PPP loan eligibility FAQ.
What if I haven’t received a PPP loan before? Can I still get 3.5x the monthly average on my first draw loan?
Only qualifying food services and accommodation businesses (NAICS code 72) applying for a second draw PPP loan have been made eligible to request 3.5 times their monthly average payroll costs. For your first-draw PPP loan, you may request 2.5X your average monthly payroll costs, up to $10 million.
If you hurry, you may be able get your first and second draw PPP loans before the deadline and maximize your emergency stimulus!
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