Summary
On December 27th the President signed into law the second major bipartisan COVID-19 relief package. The package releases $900 billion in emergency relief funds to cover costs of vaccine distribution, to extend enhanced unemployment benefits, and to fund $600 stimulus checks for many Americans. The legislation also includes a second round of financial relief for hard hit small businesses.
The Committee on Small Business earmarked nearly $285 billion for loans to small businesses under the Paycheck Protection Program (‘PPP”). These PPP loans are designed to be forgiven when borrowers demonstrate that they used the majority of the funds to maintain payroll.
As the pandemic continues to significantly impact the United States, effectively locking down several regions across the country, PPP loans are once again available. First-time borrowers are encouraged to apply, and companies that previously obtained PPP loans in the spring and meet the criteria for “second draw” loans will be able to apply for a second loan.
Additionally, some of the problematic issues with the first round of PPP loans have been addressed, including rules that permitted very large businesses to obtain large loans. The new PPP loan program prevents publicly traded companies from applying for loans and caps loans at $2 million, even for small businesses with multiple locations.
To qualify for a “second draw” a company must:
Businesses across many industries – from government contractors to medical practices – are likely eligible for these second draw loans. Moreover, the PPP program appropriates $12 billion for minority owned businesses.
In order to qualify for forgiveness, a business must demonstrate that at least 60% of PPP funds were spent on payroll costs. These costs can include certain group life, disability, vision, and dental insurance payments, whereas the CARES Act only included “group healthcare benefits.”
The remainder of the loan proceeds may be used for a wide range of qualified expenses including rent, mortgage interest, certain utilities, certain operating expenditures, property damage repair costs, supplier costs, and expenses for procuring PPE in relation to COVID-19.
This new program makes it easier for borrowers of $150,000 or less to apply for forgiveness – borrowers will need to fill out a one page form attesting compliance with PPP requirements and will only need to provide a summary of qualified expenses rather than submitted detailed receipts. At REAVESCOLEY we still recommend that borrowers retain all supporting documentation.
The stimulus bill also contains tax-related provisions, including a temporary (through Dec. 31, 2022) enhanced tax deduction of 100% (as opposed to 50%) for certain business meals; an increase in the total amount of charitable contributions for 2021 from $300 to $600 on a joint return; an extension, through March 2021, of the refundable tax credits available for paid sick and family leave; a reduction of the adjusted gross income floor for medical expenses to 7.5% (down from 10%); extended eligibility to make certain disaster-related early withdrawals from tax-qualified retirement plans (up to $100,000) without the 10% early withdrawal penalty for up to 180 days following enactment of the legislation, and the deductibility of qualified PPP expenses.
As this is a new bill, additional information is likely to become available in the coming days and weeks. Our recommendations may be updated based on further guidance or information. If you have any questions about PPP program compliance or “second draw” loans, please contact Jonathan Lazarow at (513) 505-1056 or [email protected]
The Committee on Small Business earmarked nearly $285 billion for loans to small businesses under the Paycheck Protection Program (‘PPP”). These PPP loans are designed to be forgiven when borrowers demonstrate that they used the majority of the funds to maintain payroll.
As the pandemic continues to significantly impact the United States, effectively locking down several regions across the country, PPP loans are once again available. First-time borrowers are encouraged to apply, and companies that previously obtained PPP loans in the spring and meet the criteria for “second draw” loans will be able to apply for a second loan.
Additionally, some of the problematic issues with the first round of PPP loans have been addressed, including rules that permitted very large businesses to obtain large loans. The new PPP loan program prevents publicly traded companies from applying for loans and caps loans at $2 million, even for small businesses with multiple locations.
To qualify for a “second draw” a company must:
- Have fewer than 300 employees; and
- Have experienced at least a 25% dip in sales from a year earlier in at least one quarter (compared to the same quarter the previous year).
Businesses across many industries – from government contractors to medical practices – are likely eligible for these second draw loans. Moreover, the PPP program appropriates $12 billion for minority owned businesses.
In order to qualify for forgiveness, a business must demonstrate that at least 60% of PPP funds were spent on payroll costs. These costs can include certain group life, disability, vision, and dental insurance payments, whereas the CARES Act only included “group healthcare benefits.”
The remainder of the loan proceeds may be used for a wide range of qualified expenses including rent, mortgage interest, certain utilities, certain operating expenditures, property damage repair costs, supplier costs, and expenses for procuring PPE in relation to COVID-19.
This new program makes it easier for borrowers of $150,000 or less to apply for forgiveness – borrowers will need to fill out a one page form attesting compliance with PPP requirements and will only need to provide a summary of qualified expenses rather than submitted detailed receipts. At REAVESCOLEY we still recommend that borrowers retain all supporting documentation.
The stimulus bill also contains tax-related provisions, including a temporary (through Dec. 31, 2022) enhanced tax deduction of 100% (as opposed to 50%) for certain business meals; an increase in the total amount of charitable contributions for 2021 from $300 to $600 on a joint return; an extension, through March 2021, of the refundable tax credits available for paid sick and family leave; a reduction of the adjusted gross income floor for medical expenses to 7.5% (down from 10%); extended eligibility to make certain disaster-related early withdrawals from tax-qualified retirement plans (up to $100,000) without the 10% early withdrawal penalty for up to 180 days following enactment of the legislation, and the deductibility of qualified PPP expenses.
As this is a new bill, additional information is likely to become available in the coming days and weeks. Our recommendations may be updated based on further guidance or information. If you have any questions about PPP program compliance or “second draw” loans, please contact Jonathan Lazarow at (513) 505-1056 or [email protected]
Eligibility Requirements
The most recent $900 billion COVID relief bill (signed by the President) has wide-ranging implications. The stimulus package portion of the bill includes $166 billion earmarked for direct checks to individuals and includes $325 billion reserved for small business relief. For severely hindered businesses, a second round of PPP loans, referred to as a “second draw” is the focal point of the bill.
What We Know
For businesses, the second round of PPP loans will be reserved for the hardest hit borrowers.
Eligibility Requirements for a second PPP Loan:
Forgiveness Eligibility:
Other Highlights:
What We Don’t Know Yet
Currently, there are many questions regarding the finer details of the second wave of loans. It has yet to be determined what businesses will need to provide as support for the 25% gross receipts decline test and if cash or accrual accounting method will be required. While it is expected that borrowers will be required to represent that “the uncertainty of current economic conditions make necessary the loan request to support the ongoing operations”, given the fact that eligible business will already have to support a significant revenue decline, the language or terms of the representation may change.
When We’ll Know It
The Small Business Administration (“SBA”) has 10 days to issue further guidance and detailed rules on the second round of PPP Loans. It is expected they will release forms and instructions along with FAQs at that time. Additionally, the SBA has 24
days to create an application for the simplified forgiveness (loans under $150,000).
What to do Now
Does your business meet the requirements for a second round of PPP loans or the entertainment venue grants? While applications cannot be submitted now, starting the conversation now and determining your eligibility is essential to being ready when the application process is open.
Proactively communicate to your lender or banker to confirm if they are participating in this round of PPP loans so you are prepared when the applications are ready.
What We Know
For businesses, the second round of PPP loans will be reserved for the hardest hit borrowers.
Eligibility Requirements for a second PPP Loan:
- 300 or fewer employees (if multiple locations, not more than 300 per physical location).
- Business must have a 25% gross receipts decline in any quarter in 2020 compared to the same quarter in 2019 (EIDL and PPP Loan proceeds from Round 1 are not counted in gross receipts).
- If the entity was not in operation until the second half of 2019, businesses can compare any 2020 quarter to a 2019 quarter to meet the 25% gross receipts decline test.
- Loan amounts will be 2.5x average monthly payroll costs, with a maximum loan amount of $2 million, which is a reduction from the $10 million cap on Round 1 loans. Restaurants and hotels will be eligible for loan amounts of 3.5x average monthly payroll costs, subject to the same $2 million cap.
- The average monthly payroll costs can be calculated based on 2019 activity or the 12 months prior to the loan being made. Applicants should consider both periods to maximize their loan amount. Special rules are available for those entities not in business for the entire period or those entities that are seasonal.
Forgiveness Eligibility:
- Similar to the Round 1 loans, the Round 2 loans are eligible for forgiveness based on utilizing the funds on permitted uses (with at least 60% spent on payroll costs) and meeting requirements for maintaining wage and employment levels.
- The period to utilize the funds and be eligible for forgiveness (the ‘covered period’) is any period between 8 and 24 weeks.
- Covered expenses are expanded: Worker protection expenditures (PPE), supplier costs, operations expenditures and property damage costs (related to 2020 public disturbances not covered by insurance) are now eligible. This applies to PPP Round 1 loans as well.
- The amount of loan forgiveness is no longer reduced by the amount of any EIDL advance that the borrower may have obtained (up to $10,000). We expect that borrowers who had EIDL advances and had already applied for forgiveness will have an opportunity to amend their forgiveness application.
Other Highlights:
- Simplified loan forgiveness for loans of $150,000 or less. Businesses will need to sign and submit a one-page form and attest to complying with PPP requirements. This includes PPP Round 1 loans as well.
- PPP deductibility – PPP loan proceeds are excluded as gross income for tax purposes. Further, deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. Applies to PPP Loan Rounds 1 and 2.
- $15 billion set aside for grants for independent entertainment businesses, such as music venues and movie theaters. Applicants must have lost at least 25% of revenue to qualify and those that have lost 90% will be able to apply first within the first two weeks after the bill becomes law. If an entertainment business receives the grant, it is ineligible to receive a PPP loan.
What We Don’t Know Yet
Currently, there are many questions regarding the finer details of the second wave of loans. It has yet to be determined what businesses will need to provide as support for the 25% gross receipts decline test and if cash or accrual accounting method will be required. While it is expected that borrowers will be required to represent that “the uncertainty of current economic conditions make necessary the loan request to support the ongoing operations”, given the fact that eligible business will already have to support a significant revenue decline, the language or terms of the representation may change.
When We’ll Know It
The Small Business Administration (“SBA”) has 10 days to issue further guidance and detailed rules on the second round of PPP Loans. It is expected they will release forms and instructions along with FAQs at that time. Additionally, the SBA has 24
days to create an application for the simplified forgiveness (loans under $150,000).
What to do Now
Does your business meet the requirements for a second round of PPP loans or the entertainment venue grants? While applications cannot be submitted now, starting the conversation now and determining your eligibility is essential to being ready when the application process is open.
Proactively communicate to your lender or banker to confirm if they are participating in this round of PPP loans so you are prepared when the applications are ready.
Let’s Talk
Do you have further questions about PPP expense deductibility? Please contact us for PPP loan application and forgiveness consulting or for any other issues related to the COVID Relief Bills. We would be happy to assist you and your business.
As this is a new bill, additional information is likely to become available in the coming days and weeks. Our recommendations may be updated based on further guidance or information. If you have any questions, please contact Jonathan Lazarow at (513) 505-1056 or [email protected]
Do you have further questions about PPP expense deductibility? Please contact us for PPP loan application and forgiveness consulting or for any other issues related to the COVID Relief Bills. We would be happy to assist you and your business.
As this is a new bill, additional information is likely to become available in the coming days and weeks. Our recommendations may be updated based on further guidance or information. If you have any questions, please contact Jonathan Lazarow at (513) 505-1056 or [email protected]
