How to Calculate a 25% Revenue Reduction to Qualify for a Second PPP loan

The Paycheck Protection Program closed in May 2021. This information has been archived for reference only.

One of the most common questions business owners ask about the Paycheck Protection Program (PPP) is “how do I calculate a 25% revenue reduction?” This guide makes it simple to calculate and ensure you qualify when you apply for your second PPP loan.

In general, to calculate your decline in revenue, compare your quarterly gross receipts for any quarter in 2020 with the gross receipts for the same quarter of 2019.

For example, if you had $50,000 in gross receipts for the second quarter of 2019, and gross receipts of $30,000 in the second quarter of 2020, then you’ve experienced a 40% revenue reduction between the quarters and are therefore eligible for a Second Draw PPP loan (assuming all other eligibility criteria are met).

When you apply online for PPP, it’s your responsibility to determine and prove that your business experienced a 25% decline in revenue. We will verify your calculation as part of our underwriting process but providing an accurate calculation as part of your application will help streamline your borrowing process.

While this guide will help most business owners determine if they meet the requirements, you may have questions that are unique to your business. Your bookkeeper or accountant will be the best source for individual support as you calculate if the 25% revenue reduction has been met. As your lender, Pursuit is unable to give specific advice to your business. 

Let’s get started!

First, determine what figures count as “gross receipts”

Your company’s gross receipts (also called “revenue”) includes all revenue in whatever form received or accrued (in line with your business’s accounting method), from whatever source. This includes any of the following (reduced for any returns and allowances):

  • Sales of products or services
  • Interest or dividends
  • Rents
  • Royalties
  • Fees or commissions

The revenue calculation does not include the following:

  • Net capital gains or losses as reported on IRS tax return forms
  • Taxes collected for and remitted to a taxing authority (such as sales or other taxes collected from customers)
  • Proceeds from transactions between your business and your affiliates
  • Amounts collected for another (e.g. travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker)
  • Proceeds from your first PPP loan

If you are an eligible nonprofit organization, a veterans organization, an eligible nonprofit news organization, an eligible 501(c)(6) organization, or eligible destination marketing organization, gross receipts means gross receipts within the meaning of section 6033 of the Internal Revenue Code of 1986.

How do I calculate the 25% reduction between quarters?

SBA requires that the calculation be based on calendar quarters, regardless of your business’s fiscal year-end or reporting standard. These are represented as follows:

  • First Quarter – January, February, and March
  • Second Quarter – April, May, and June
  • Third Quarter – July, August, and September
  • Fourth Quarter – October, November, and December

If your business was in operation during all of 2019, you will calculate the revenue reduction by taking a calendar quarter from 2020 and comparing it to the corresponding quarter in 2019. The calculation is simple:

  • First, take the difference between the revenues for the chosen quarter of 2020 and the corresponding quarter of 2019. For example, if you choose the second quarter of 2020 you must compare this to the second quarter of 2019
  • Next, divide the result by the revenues for the chosen quarter of 2019
  • Then, multiply the result by 100 to get your percentage reduction in revenue

Please note, for ease of documentation and calculations, you can also use annual figures for 2019 and 2020 to calculate and submit copies of your annual tax forms that substantiate the revenue decline.

Need additional guidance? You can access a solution that makes this calculation even easier. This convenient PPP loan amount calculator can be used to perform the math for you. Simply insert the quarterly revenues for 2019 and 2020 and the calculator will let you know if your business is eligible for a second PPP loan. It will even provide you with the specific figures to include in your loan application.

What if my business was not operating during all of 2019? Are there alternate calculations?

If you were not operational during all of 2019, SBA has provided alternate calculations to ensure you can qualify for a second PPP loan. Depending on when your business began generating revenues, there are three alternate calculations. We recommend using our PPP loan amount calculator because it automatically calculates based on these methods.

  • Option 1: My business was not operating during the first or second quarter of 2019, but was in business during the third and fourth quarter of 2019. Said another way, the business began operations in July, August, or September 2019.
    • You can compare revenues from the first, second, third, or fourth quarter of 2020 with the applicant’s revenue during either the third or fourth quarter of 2019.
  • Option 2: My business was not operating during the first, second, or third quarter of 2019, but was in business during the fourth quarter of 2019. Said another way, the business began operations during October, November, or December 2019.
    • You can compare revenues from the first, second, third, or fourth quarter of 2020 with the applicant’s revenue during the fourth quarter of 2019.
  • Option 3: My business was not operating at all during 2019, but was in operation on February 15, 2020.
    • You can compare revenues from the second, third, or fourth quarter of 2020 with the applicant’s revenue during the first quarter of 2020.

What documents should I submit to prove the 25% revenue reduction?

You will be required to submit documents that prove that your business experienced a revenue reduction of 25% or greater in 2020 relative to 2019. These documents may include relevant tax forms, including annual tax forms or quarterly financial statements or bank statements. It’s your responsibility to provide clear documentation and support of the 25% or greater decline in revenues.

Outside of this information, SBA has not provided specific guidance on the documentation required to demonstrate the 25% drop in revenues. We recommend that your application contain clear evidence and specific figures to ensure compliance with this regulation.

What accounting method do I use when calculating quarterly revenues?

You should use the revenue figures that are consistent with your entity’s tax accounting method. If you file annual tax returns on an accrual basis, then your revenue reduction should be calculated under the same method. You should not change accounting methods to calculate your revenue reduction.

Apply for a Paycheck Protection Program loan

Now that you’ve determined that you meet the 25% revenue reduction, you’re ready to apply. Businesses in New Jersey, New York, Pennsylvania and beyond can apply online for a second PPP loan or apply online for a first PPP loan with Pursuit. You’ll work with an experienced PPP lender that provided more than 7,000 PPP loans in 2020 and can rest assured that your loan is processed with SBA accurately and efficiently. Let’s get started!

Pursuit is providing this information and calculations for convenience purposes only. Applicant is responsible for calculating payroll costs, calculating its revenue reduction percentage, and for providing true and correct information to Pursuit. Pursuit is not acting as Applicant’s advisor in determining whether Applicant qualifies for a loan, whether the type of documentation is correct for the Applicant, whether the information Applicant provides is correct, or otherwise. (That is the Applicant’s responsibility). Pursuit and the Small Business Administration (SBA) are relying on Applicant, as the borrower, to determine whether the Applicant qualifies and whether the calculations and information provided is accurate and complete. While this information is based on the applicable Paycheck Protection Program (PPP) regulations, such has been provided for convenience purposes only. Applicant is solely responsible for its use of this calculator and ensuring that it complies with the PPP rules and regulations.

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