Highlights of the Paycheck Protection Program Cycle 2 PPP
UPDATE: December 29, 2020
After much deliberation, Congress finally agreed to approve a $ 900 billion COVID-19 relief plan under the Consolidated Appropriations Act, 2021. This amount includes $ 284 billion for a second round of Paycheck Protection Program (PPP). The new rescue package includes:
additional funding for new PPP loans
the possibility of obtaining a second PPP loan for small businesses facing significant drops in revenue in a quarter of 2020 compared to the same quarter in 2019
clarifications providing for the deductibility of business expenses paid with canceled PPP loans (a significant change from existing IRS guidelines)
first-time loan eligibility for not-for-profit organizations covered by section 501 (c) (6)
$ 15 billion for theaters, independent cinemas and cultural institutions
$ 20 million for the Economic Disaster Loan Program
Although based on similar principles to the first round of PPP funding under the CARES Act, the second round of PPP (the “second draw”) has some key differences which are summarized below. Please note that guidelines and regulations for this second round of PPP have not yet been published. (The Small Business Administration (SBA) must provide these regulations within 10 days of enactment of the law.) We plan to provide updates as these guidelines and regulations are released.
Limited eligibility for second-draw PPP loans: The second drawdown of PPP loans is available to borrowers who have already received a PPP loan. Second-draw PPP loans are limited to companies that (i) employ no more than 300 employees (instead of 500) or meet some other size standard; (ii) used the entire amount of their first PPP loan or will use those amounts, and (iii) had gross receipts in the first quarter or third quarter of 2020 that were at least 25% lower than the gross receipts of the same term in 2019 (applicants can use Q4 2020 if they apply after January 1, 2021). If the business was not in business for part of 2019, the comparable quarters may be different. The limitations put in place for Second Draw loan eligibility, as explained in this section, do not apply to first-time borrowers.
Borrowers should be aware that it is not clear whether second-draw PPP loans remove or modify the necessity requirement, which required all borrowers to certify that “[c]The current economic uncertainty makes this loan application necessary to support the applicant’s ongoing operations “on the date of the PPP loan application submission. We hope to have more information on this matter in the coming weeks.
Maximum loan amount: Second-draw PPP loan borrowers have the option of calculating the maximum loan amount by multiplying the borrower’s average total monthly payroll in (a) the period of one year prior to the date on which the loan is due. granted, or (b) calendar year 2019, by 2.5x. The maximum loan amount was reduced from $ 10 million in the first round to $ 2 million. As in the first round, seasonal employers calculate their maximum loan amount differently. Note that the $ 2 million cap does not apply to first-time borrowers, this cap remains at $ 10 million.
Maximum loan amounts for the hotel industry: Second-draw PPP loan borrowers who have NAICS code 72 (typically restaurants and hotels) are allowed to use a multiplier of 3.5 times their average monthly salary costs to calculate their maximum loan amount, under $ 2 million cap reserve.
Choose your own period covered: Originally, the SBA predicted that the covered period (the time that a borrower must use the funds to qualify for a discount) would be an eight week period starting from the date the borrower received the proceeds from the loan. ready. In subsequent amendments, the period covered has been extended to 24 weeks. Borrowers can now choose the length of their covered period as long as it is at least eight weeks and no longer than 24 weeks. This subtle change will give borrowers greater control over how to handle potential labor cuts once PPP funds run out.
Use of PPP funds: Congress has broadened the types of expenses for which all PPP loans can be used, which applies to existing PPP loans (except where a discount has already been obtained) and new loans. In addition to payroll, rent, covered mortgage interest and utilities, the PPP now allows the product to be used for:
Covered operating expenses: payments for enterprise software or a cloud computing service that facilitates business operations, delivery of products or services, processing, payment or tracking of payroll expenses, human resources and billing functions, or accounting or tracking of supplies, inventories, records and expenses
Costs of covered material damage: costs related to damaged property and vandalism or looting due to public unrest in 2020 that were not covered by insurance or other compensation
Supplier costs covered: expenditures to a supplier of goods which are essential to the operations of the entity at the time the expenditure was made and are made under a contract or order in force at any time before the period covered or, in with regard to perishable goods, in force at all times during the period covered
Expenses covered for worker protection: operating or capital expenses that enable a business to comply with requirements or guidelines issued by CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date the national emergency declared by the President expires related to maintaining standards of sanitation, social distancing or any other worker or customer safety requirements related to COVID-19. These expenses appear to include PPE, the physical barriers that have been put in place, the expansion of the interior / exterior space, ventilation or filtration systems and passage windows.
Tax treatment: PPP loans will not be included in taxable income. Expenses paid with the proceeds of a canceled PPP loan are now tax deductible. This covers not only new loans, but also existing and past PPP loans, reversing previous Treasury and IRS guidelines, which did not allow deductions on expenses paid with PPP proceeds. In addition, any increase in the income tax base resulting from the borrower’s PPP loan will be maintained even if the PPP loan is canceled.
EIDL’s advances do not reduce forgiveness: Prior to the passage of the new law, borrowers who received an EIDL advance (advances between $ 1,000 and $ 10,000) had that amount subtracted from their total remittance, which, in effect, had the effect of repaying the loan. advance EIDL. The law now provides that EIDL advances will not reduce PPP loan forgiveness. The SBA has indicated that borrowers who have already received a rebate and whose EIDL advance has been deducted from that rebate may be able to modify their rebate requests. Further guidelines are expected to be published.
Remission requests for loans under $ 150,000: The forgiveness application for loans under $ 150,000 will be simplified to a one-page certificate that includes a description of the number of employees the eligible recipient may have retained as a result of the loan, the total estimated loan amount spent on salary costs and the total loan amount. Borrowers should be aware, however, that while applying for a rebate is simplified, all of the rules still apply. Rather than showing how borrowers arrived at certain numbers, the streamlined app simply asks borrowers to self-certify. In view of the responsibility attached to making a false attestation with the SBA, we advise all borrowers who choose to submit this simplified request to verify their answers by completing at least, in draft form, the detailed request for ensure that the attestations made on the simplified form are true and correct. In addition, all borrowers must keep all employment records relating to the rebate request for a period of four years from the date of submission, and all other records relating to the PPP and the rebate request for a period of four years from the date of submission. three years after submission of the rebate request.
Eligibility for Section 501 (c) (6) Not-for-Profit Organizations: For the first time, not-for-profit organizations under Section 501 (c) (6) will be able to apply for and receive PPP loans. These organizations are usually made up of trade leagues, chambers of commerce, real estate chambers, chambers of commerce and professional football leagues, which are not organized for profit and with no part of the net profit going to a shareholder. private or to an individual. These organizations are generally expected to be eligible as long as (i) they do not receive more than 15 percent of their revenue from lobbying activities, (ii) lobbying activities do not represent more than 15 percent. percent of the organization’s total activities, (iii) the cost of lobbying activities did not exceed $ 1 million in the tax year ending February 15, 2020, and (iv) the organization does not employ more than 300 employees.
PPP loans in bankruptcy: In a significant change, bankrupt borrowers will be able to apply for PPP loans. These new loans will be treated in the event of the borrower’s bankruptcy as administrative claims and, as long as they are not canceled, must be repaid in full in all Chapter 11 cases and are not subject to cram. down ”.
Disclaimer: We provide PPP information as a convenience. The application and related requirements are subject to change and we are not responsible for updating this information. By providing this information, we are not giving legal or tax advice. For advice on your particular situation, please contact your advisors.