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Maximizing Cash Flow, With or Without a Second PPP Loan

The stricter eligibility requirements for second draw Paycheck Protection Program (PPP2) loans excluded many construction companies from the new round of COVID-19 relief.

The stricter eligibility requirements for second draw Paycheck Protection Program (PPP2) loans excluded many construction companies from the new round of COVID-19 relief. The PPP2 rules under the Consolidated Appropriations Act, 2021 state that a business must have experienced a 25% or greater decline in gross receipts in any 2020 quarter compared with the same 2019 quarter and have 300 or fewer employees.

Contractors who did meet the new eligibility requirements are experiencing a much slower approval and funding process this time around as a result of the SBA implementing more front-end compliance and eligibility checks, as well as the evolving nature of the documentation required to prove need for the relief. This tightened verification process has resulted in delayed application decisions of up to two weeks, or flat-out denial, leaving contractors to wonder if they can count on this influx of cash or not.

Non-PPP Strategies

Whether you end up receiving one, two or zero PPP loans, there are other avenues all contractors should be considering to ensure their businesses have enough cash on hand to weather the ongoing economic crisis.

  • Press on getting receivables collected. The construction industry lags behind the rest of the economy, and cash collections is no exception. Normally, getting paid in 60 days is acceptable, but many accounts have lapsed past 120 days. Impress on employees the importance of cash flow its impact on the entire company. 
  • Prepare a cash flow forecast. This financial management tool, which should be conducted on both a project-by-project and enterprise-wide basis, will help identify peaks and valleys in cash flow and quantify immediate and future cash needs.
  • Consider utilizing other sources of cash. The cash flow forecast will help you assess the need to tap into a line of credit, obtain a loan from ownership or look to alternative solutions such as equity from real estate or an equipment fleet.
  • Look into ERC eligibility. Along with PPP2 came some lucrative changes to the Employee Retention Credit (ERC). While the CARES Act originally restricted many PPP participants from receiving these payroll tax credits, the new law opened ERCs to all PPP borrowers and expanded the availability and maximum credit amount in the first two quarters of 2021. Look at wages before and after the covered period and any wages over the $100,000 PPP cap. These are wages not included in forgiveness and may be creditable for ERC purposes.

For some contractors, it will be obvious whether they do or do not meet the stricter eligibility requirements of PPP2 under the new law. But for others, it may not be so clear. If you are still unsure if your business can qualify for a PPP2 loan, it is important to understand the precise requirements, calculation methodologies, and industry-specific considerations affecting contractors’ eligibility.

Revenue Reduction 

A revenue reduction of 25% or more can be determined by comparing quarterly gross receipts for one quarter in 2020 to the gross receipts in the corresponding quarter of 2019. Alternatively, borrowers that were in operation all four quarters of 2019 may choose either an annual or quarterly basis for this comparison. 

When calculating gross receipts for PPP purposes for a contractor, start with the normal procedures your business would use to compile this information for your CPA in preparation for the annual audit. Include costs-to-date, billings-to-date, the value of new contracts and current period over-billings and under-billings, and make all necessary adjustments to the company’s books.

The simplest place to start when comparing gross receipts is the annual comparison. If your books are showing a greater than 25% reduction in annual revenues in 2020, as compared to 2019, you are in a good position to move forward with speaking to your accountant and gathering your documentation.

If the annual comparison does not show an obvious 25% or greater revenue reduction, you will want to pivot to the quarterly comparison. Start with comparing Q2 2019 to Q2 2020, when most of the mandated shutdowns took place. While any quarter can ultimately be used, Q2 2020 is the quarter that is most likely to reflect the highest reduction in revenues for most contractors.

Even if the second round of PPP funding never comes, employing additional cash strategies will be time well-spent, especially in a “cash is king” industry like construction. With so many economic, industry and project-related challenges out of the contractor’s control, cash flow management is an area where you can take back much-needed clarity and direction. 

Ronald J. Eagar, CPA, CCIFP is a construction partner and COO at Grassi. Ron can be reached at 

Carl Oliveri, CPA, CCIFP, CFE, M.B.A., is the construction practice leader at Grassi. Carl can be reached at 

Ronald J. Eagar
Ronald J. Eagar

Ronald J. Eagar, CPA, CCIFP is a construction partner and COO at Grassi. Ron can be reached at