Key Takeaways for New PPP Loans
As most people are aware that during the chaotic first round and the “second round” or extension of the program until September of 2020 to provide business with relief to keep people employed. The recently approved Covid-19 Relief Bill provided much needed clearing up for small and large businesses that received PPP loans and more funds for another round of funding the key differences will be explained below.
New PPP and EIDL Funds Available
Under the new bill small and large businesses and Sole – proprietors that received PPP loans during the first round of PPP loan disbursements are now allowed to deduct the PPP funds that have been used to pay employees in your business but also request for forgiveness with no tax implications. As a discharge of debt in most instances is a taxable event for the party that had the debt discharged. This is great news for small businesses as they are now taking full advantage of what Congress has set out since the onset of the Covid-19 Pandemic.
Eligibility for “Second Draw” PPP Loans
New guidance and rules are currently in the process for the new round of PPP loans that business can receive. Based on our current understanding:
– Business must have three-hundred or less employees down from the original five-hundred employees under the original rules
– The business must be able to show that it has had a drop in revenue of 25% in any of the quarters (depending on when you apply for the second PPP loan) in 2020 compared to 2019.
– Congress also enacted special allocations for Entertainment venues, restaurants and all other recreational facilities that have been impacted much more than other business. They can now receive 3.5 months of payroll and other business-related expenses rather than 2.5 months during the initial round of PPP loans. This can help mitigate
-Excluded businesses regardless of their number of employees or revenue losses. This includes businesses that have been created or organized under the laws of Hong Kong or China. If these businesses conduct a significant portion of operations in Hong Kong or China, or businesses that have Board members that are Chinese Citizens, and if 20% or more is owned by a business that originated in Hong Kong or China.
As most people are aware that during the chaotic first round and the “second round” or extension of the program until September of 2020 to provide business with relief to keep people employed. The recently approved Covid-19 Relief Bill provided much needed clearing up for small and large businesses that received PPP loans.
Such funding is to be made available between the enactment of this legislation and March 31, 2021.
Expanded Eligibility to Receive PPP Loans
Under the new legislation, certain categories of borrowers previously not eligible are now more clearly eligible, including local chambers of commerce, housing cooperatives, and certain news stations. Congress also included language confirming that churches and religious organizations are eligible borrowers.
Expanded Uses of PPP Loan Proceeds
The initial round of PPP loan proceeds was to only cover the following: payroll costs; payments of interest on any mortgage obligation (excluding prepayments); rent (including rent under a lease agreement); utilities; and interest on any other debt obligations that were incurred before the applicable “covered period” of the loan (i.e., the period during which permitted uses of PPP loan proceeds would be eligible for forgiveness). For background on how these categories of permitted uses are defined, including limitations on which eligible uses would qualify for loan forgiveness, see here and here.
The new legislation expands the scope of expenses that PPP loans may be used for and for which forgiveness may be granted to include the following types of expenses:
- “Covered operations expenditures”—defined as business software or cloud computing expenses for business operations, product or service delivery, payroll processing, payment, or tracking, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.
- “Covered property damage costs”—defined as costs relating to damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
- “Covered supplier costs”—defined as supplier payments that are essential to the borrower’s operations and were made either (1) pursuant to a contract, order, or purchase order in effect prior to the covered period, or (2) with respect to perishable goods, pursuant to a contract, order, or purchase order before or during the covered period.
- “Covered worker protection expenditures”—defined as operating costs or capital expenditures incurred by a borrower, during the period beginning on March 1, 2020 and ending upon the expiration of the presidential national emergency declaration with respect to COVID-19, to facilitate adoption of business activities to comply with applicable laws and guidance relating to COVID-19. For example, this could include expenditures on drive-through improvements, ventilation or filtration systems, physical barriers, expansion of business space, establishment of health screening capabilities, or other assets as determined by the SBA in consultation with HHS and the Secretary of Labor, as well as personal protective equipment (PPE).
- To the extent there was doubt about whether group life, disability, vision, or dental insurance could be included as “payroll costs,” the new legislation clarifies that these expenses are included and thus are eligible uses and qualify for loan forgiveness.