After months of negotiation, Congress recently approved and the President signed a new COVID relief package. The new package includes additional funding for the Paycheck Protection Program (PPP) for small businesses. The new package also provides additional funding for businesses that did not receive PPP money initially and provisions allowing businesses a second chance for PPP funds.
Update: The SBA recently issued new guidance related to PPP loans in the new stimulus package. The guidance came in the form of two interim final rules (IFRs):
- “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
- “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan.
Key provisions to be aware of:
- Provides $284 billion for PPP and extends the application deadline to March 31, 2021.
- Businesses with 300 employees or less and a 25% decline in revenue in any quarter in 2020 compared to the same quarter in 2019 are eligible for a second round of forgivable PPP loans of up to $2 million.
- Expands eligibility to both nonprofit and quasi-governmental with 300 employees or less (full time and part-time combined), as long as no more than 15% of their activities consist of lobbying activities and they did not spend more than $1 million on lobbying in 2019.
- $35 billion is set aside for first-time PPP loan recipients.
- Expands the list of PPP-covered expenses to the cost of supplies and inventory, software and cloud-based services, uninsured damages from public disturbances in 2020, and measures to address COVID-19 health and safety guidelines, like PPE expenses, in addition to payroll, mortgage debt interest, rent, and utilities.
- Allows borrowers to deduct expenses covered by PPP loans from their taxes.
- Continues to require at least 60% of loan proceeds to be used on payroll, capping covered non-payroll expenses to 40% of the loan.
- A business that was not in operation on February 15, 2020 is not be eligible for a PPP loan.
- Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019, through February 15, 2020.
- Farmers and ranchers in operation as of February 15, 2020, may utilize their gross income from 2019 when calculating their maximum loan amount.
What you can do now:
- Businesses should check to make sure their financial institution is doing PPP #2 loans.
- If yes, ask to be alerted when the loan portal opens up and ask what information the bank/credit union may anticipate needing. Many bank executives have been prepping their lending teams for another round of PPP and some may likely get wind of SBA final rules before publicly available.
- If no, reach out to banks or credit unions that are willing to process PPP loans for new customers. Save valuable time by opening up a business account now. If unsure where to start, try the SBA list of approved PPP providers.
- Businesses should be getting their business financial statements and payroll data updated so you are ready when the financial institution is ready to open its PPP Round 2 loan application online portal or other process.
- This may mean having conversations or setting appointments now with your CPA and/or payroll provider to make sure the anticipated documentation is complete and correct. Anticipated documentation can be inferred from looking at eligible expenses listed in the stimulus bill and/or having a conversation with your banker. Incomplete or erroneous documentation can slow down the PPP loan approval and closing process.