12/28/20 – Stimulus Bill and PPP Round 2
Late Sunday night, the President signed H.R. 133, which contained a number of COVID-19 relief provisions that taxpayers have been anxiously awaiting. The Act is 5500 pages long, so we’ve summarized some of the major highlights for you below.
Paycheck Protection Program (PPP) Provisions
- Allows a deduction for any expense used to forgive your PPP loan. Now, the loan really is non-taxable.
- Makes the following expenses allowable and forgivable uses for PPP funds:
- Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
- Allows the borrower to elect a Covered Period ending anytime between 8 and 24 weeks of the loan origination date. Prior to this amendment, the borrower *had* to use 8 or 24 weeks.
- Creates a simplified application process for loans under $150,000. The SBA has 24 days to create this one-page application, and the only requirements will be a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.
- Establishes a specific loan calculation for farmers and ranchers who report income and expenses on a Schedule F and were in business as of 2/15/2020. These entities may utilize their GROSS income in 2019 as reported on Schedule F.
- If your loan has not yet been forgiven, you can have your lender recalculate your loan to receive a larger amount.
- Repeals the Section of the CARES Act which required PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount.
- Extends the Covered Period for all PPP loans through 3/31/2021.
PPP Second Draw
- Creates a 2nd loan from the PPP, called a “PPP second draw” loan for smaller and harder-hit businesses. Here are the eligibility requirements:
- Employ not more than 300 employees;
- Have used or will use the full amount of their first PPP; and
- Demonstrate at least a 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter of 2020 relative to the same quarter in 2019.
- Be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, or small agricultural co-operatives.
- Loan terms
- Loan amount – 2.5x the average monthly payroll costs in the one year prior to the loan or calendar year.
- Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.
- New entities may receive loans of up to 2.5X the sum of average monthly payroll costs.
- Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.
- Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.
- Waiver of affiliation rules that applied during initial PPP loans apply to a second loan.
- An eligible entity may only receive one PPP second draw loan.
- Fees are waived for both borrowers and lenders to encourage participation.
- For loans less than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits their loan forgiveness application and non-profit and veterans organizations may utilize gross receipts to calculate their revenue loss standard.
- Loan Forgiveness
- Borrowers of a PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.
We’re sure you have a lot of questions after reading the above… so do we! If you remember, how this process has typically gone is that the legislators pass the new law but then we have to wait for the SBA and US Treasury to interpret those laws and issue practical detailed guidance. We are once again in a holding pattern while we wait for new guidance. For now, we believe it’s in your best interest to wait on the forgiveness applications and instead focus on any developments regarding the second round of PPP funds.