On December 21st, Congress passed a much debated (and much smaller) second stimulus package which includes, amongst other types of assistance, a second wave of the Paycheck Protection Program (PPP) & Small Business Loans. The PPP was wildly popular under the CARES Act during the pandemic. In many cases, funds from PPP loans were the only thing keeping some businesses’ doors open while others were closing for good. While a handful of the stipulations for the continuation of this program have changed this time around, some of the guidelines remain the same.
Here’s what business owners (first time borrowers and repeat borrowers, alike) need to know about this second round offering of the PPP:
1) The deadline for the first round of PPP expired in August 8th of 2020, and the SBA initiated the forgiveness process for many businesses in October. While this new round of funding is upon us, most lenders have not yet started accepting applications. Check with your business banking provider for specific details as most applications are being processed online. Applications are expected to be open until March 31, 2021.
2) This new round of aid will be targeted for businesses who have yet to receive any PPP funding; however, this does not mean that businesses who participated the first time are out of luck. There are the three main guidelines that must be met in order to qualify for a second-draw. Businesses who have already received funds from the program will be eligible for a second loan, or “second draw,” if they:
- Have 300 employees or fewer.
- Can prove they have incurred a 25% decline in revenue for any quarter in 2020 vs the same quarter in 2019 (or against Q1 2020 for new companies).
- Indicate they have used or will use the full amount of their first PPP.
3) In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year.
4) Loans will be limited to $2 million, down from $10 million in the original round of funding. The maximum loan amount will remain the same at 250% of average monthly payroll cost in 2019, but increase to 350% for hotels and restaurants.
5) In order to be eligible, businesses must not be affiliated with China or engaged in any type of lobbying.
6) Expenses paid with PPP proceeds are finally deductible. There was some debate about this as 2020 came to a close. Many businesses owners were frustrated at the possibility of not being able to deduct business expenses paid for with forgiven PPP funds. But now Congress confirms, “[…]Deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.”
7) Additional eligible expenses for loan forgiveness have been added including[i]:
- Software, cloud computing, and other human resources and accounting needs.
- Costs related to property damage that occurred due to public disturbance during 2020 not covered by insurance.
- Expenditures to a supplier pursuant to a contract, purchase order, or order for
- goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Any PPE or safety costs incurred as a result of State or local guidance due to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
This list does not apply to borrowers who have already had their loans forgiven.
8) Any business or organization that was not in operation on February 15, 2020 will not be eligible for an initial PPP loan or a second draw PPP loan.
9) In regards to forgiveness for second draw loans, borrowers will be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs will continue to apply in order to receive full forgiveness.
10) This new package includes a new “Save Our Stages Act,” which offers cultural centers, theaters and other live performance venues $15 billion in government assistance.
Here is the full division-by-division breakdown of the Coronavirus Response and Relief Supplemental Appropriations Act, 2021.
If you are a business owner looking for someone to guide you through this process, the advisors at RiversEdge are here to help. We are business owners ourselves and have been through the process personally. We have also helped (and continue to help) dozens of other businesses do the same.
Of course, we will continue to monitor and share the latest information as it becomes available. Should you have any questions regarding your PPP application or eligibility for forgiveness, we would be happy to help you sort through the details. Feel free to reach out and schedule a call at any time should you find you need assistance.
Information regarding the PPP has been updated since the publication of this article. For the most up-to-date information, please visit the SBA website here.