PPP Forgivable Loan Program Re-Opens in January 2021
Paycheck Protection Program (PPP)
The Paycheck Protection Program was first established under the CARES Act in March of 2020 and provides forgivable loans to small businesses affected by the pandemic. The loan is eligible for full forgiveness if 60% is used on payroll costs and the other 40% is used on authorized expenses during the cover period. The new relief package includes $284.5 billion in funds for this program. PPP loan borrowers will be able to apply for a second PPP loan (“second draw PPP”). The new PPP loans will be available through March 31st or until funds run out.
Only businesses that were operational before Feb. 15th are eligible for a PPP loan. The PPP loan applicant eligibility was expanded to include news organizations, housing cooperatives, 501(c)(6) organizations, and destination marketing organizations (lobbying activities can not comprise more than 15 percent of receipts or activities).
Existing PPP borrowers can qualify for a second draw PPP if they can demonstrate the following:
- a 25% revenue drop in the first, second, third, or fourth quarter in 2020 compared to the same quarter in 2019.
- they have 300 employees or less; businesses with more than one location may not have more than 300 employees per physical location
- they have used or have plans use the full amount of their first PPP loan
Other changes to PPP:
(1) PPP Loan Amounts
- up to 2.5 time average monthly payroll cost (with a cap per employee of $100,000 annualized) in the year prior to the loan, calendar year 2019 or 2020
- Businesses with NAICS Code 72 (such as hotels and restaurants) can borrow up to 3.5 times the average monthly payroll costs
(2) Eligible Costs for Loan Forgiveness is Being Expanded
Previously the PPP funds could only be used for qualified expenses such as payroll costs, rent, covered mortgage interest, and utilities. The list of expenses that the PPP loans proceeds can be used for has expanded to include:
- Operational expenses- payments for business software or cloud computing service used to facilitate operations
- Property damage costs- costs related to property damage, vandalism, or looting due to public disturbance in 2020 not covered by insurance
- Supplier costs- expenditures for contractually purchased goods that are essential to the business
- Worker Protection expenses- cost for items such as personal protective equipment to prevent the spread of the virus and comply with health and safety guidelines issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established, or guidance issued by a State or local government
(3) Cover Period
Borrowers can choose a covered period that is between 8 and 24 weeks beginning on the date the borrower received the loan proceeds. Covered period for all PPP loans is extended through March 31, 2021.
(4) Tax Treatment
Retroactive to the effective date of the CARES Act, PPP loans that are forgiven will be treated as tax-exempt income. Additionally, the new legislation clarifies that any expenses paid with loan proceeds are tax-deductible.
(5) Employee Retention Tax Credit
PPP loan recipients can now also qualify for the employee retention tax credit.