As part of a pandemic relief package, Congress has passed several changes to the Paycheck Protection Program (PPP) and created a “Second Draw” PPP for small businesses who have exhausted their initial loan. Other changes impact eligibility for initial PPP loans, the loan forgiveness process, and the tax treatment of PPP loans.
Here’s everything small business owners need to know now (Information provided by the U.S. Chamber of Commerce):
1. How Do New Changes Impact My Existing PPP Loan?
Tax Treatment: The new law overturns the IRS ruling and provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans).
Expanded List of Expenses Qualifying for Forgiveness: The list of expenses that PPP funds can be used for that qualify for loan forgiveness has been expanded to include:
- “operations expenses” defined as payments for business software and cloud computing services and other human resources and accounting needs that facilitate business operations;
- “supplier costs” defined as payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods, in effect at any time;
- “worker protection expenses” defined as operating or capital expenditures to comply with public health guidance related to COVID-19, including things like drive-through windows and sneeze guards and the purchase of personal protective equipment (PPE); and
- “covered property damage costs” defined as costs related to property damage or looting due to public disturbances in 2020 that are not covered by insurance or other compensation.
Remember: It is still the case that not more than 40% of the forgiven amount can be for non-payroll costs, which may limit how much of your loan can be forgiven.
Loan Forgiveness Reduction: If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant.
Loan Forgiveness Period: The period for which expenses count toward loan forgiveness will begin on the date of loan origination and end on a date of your choosing that is between 8 and 24 weeks after origination.
Simplified Application: If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness.
2. I Exhausted My Initial PPP Loan, How Does This Help Me?
The brand new “Second Draw” program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan. The program will make new loans through March 31, 2021 or until the new funding is exhausted.
Eligibility: You are eligible for a second draw loan if you have exhausted your first PPP loan and
- you have less than 300 employees, and
- you have experienced a greater than 25% reduction in gross receipts during the first, second, third, or fourth quarter in 2020 relative to the same quarter in 2019.
Entities with significant ties to China are ineligible for a second draw loan.
Loan Amount: The maximum loan amount is the average monthly payroll costs for the entity during the 12 months prior to the loan or, at the election of the borrower, 2019 multiplied by 2.5 (or 3.5 for employers in the accommodation and food service industry).
Seasonal employers utilize average monthly payroll costs for a 12-week period between February 15, 2019 and February 15, 2020.
A loan may not exceed $2 million.
Loan Forgiveness: The amount of loan that can be forgiven is the lesser of:
- Costs incurred or expenditures made between the date of the origination of the loan and ending on a date of your choosing that is between 8 and 24 weeks after origination for: (a) payroll costs, (b) qualifying mortgage interest or rent obligations, (c) covered utility costs, (d) covered operations costs, (e) covered property damage, (f) covered supplier costs, and (g) covered worker protection expenditures; or
- Payroll costs for the same period divided by 0.60 (this serves as a cap on the total loan forgiveness to ensure that at least 60% of the total amount forgiven is for payroll costs).
Like original PPP loans, the amount of loan forgiveness can be reduced if the borrower has (1) reduced the number of employees or (2) employee salaries by more than 25%. However, the same safe harbors that apply to original PPP loans apply to Second Draw loans. Learn more about these Safe Harbors in the Guide for PPP Loan Forgiveness.
Set-Asides: $25 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood.
3. What If I Never Received a PPP Loan?
For new PPP applicants, the loan process will largely remain the same (check out the original PPP Guide) with a few major changes:
- The PPP program is open through March 31, 2021 or until the new funding is exhausted.
- If you are a 501(c)(6), a local news media organization, or a housing cooperative you may be newly eligible for a loan.
- You may qualify even if you took advantage of the Employee Retention Tax Credit.
- If you are a publicly traded company, you are now prohibited from receiving a loan.
- Group insurance payment can be included in your payroll costs when determining your maximum loan amount (see Step 3 in our original Guide).
- If you are a seasonal employer, you have greater flexibility in picking the 12-week period between February 15, 2019 and February 15, 2020 used to determine your payroll costs and thus your maximum loan amount.
New borrowers have until the end of the covered period of their loan (up to 24 weeks after origination) to restore a reduction in their number of employees or reduced wages in order to avoid having their loan forgiveness reduced. Note: The safe harbors for when an employer cannot find qualified employees or where complying with COVID related safety measurers prevents a return to February 2020 levels of business activity and staffing remain in effect. Learn more in our Guide for PPP Loan Forgiveness.
Set-Asides: $35 billion is set-aside for first time borrowers and $15 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood.
Remember: The other changes regarding eligible uses of PPP funds and loan forgiveness discussed above will also apply to your new loan.
4. SBA Forms for PPP
SBA, in consultation with the Treasury Department, has released additional PPP forms and guidance:
Updated First Draw Forms:
• Form 2483 – First Draw Borrower Application (Updated 1/8/21)
• Form 2484 – First Draw Lender Guaranty Application (Updated 1/8/21)
Second Draw Forms:
• Form 2483-SD – Second Draw Borrower Application (Released 1/8/21)
• Form 2484-SD – Second Draw Lender Guaranty Application (Released 1/8/21)
Guidance & Resources:
• Accessing Capital for Minority Underserved, Veteran and Women-Owned Business Concerns Guidance (Released 1/6/21)
• Top-Line Overview of First Draw PPP Loans (Released 1/8/21)
• Top-Line Overview of Second Draw PPP Loans (Released 1/8/21)
• Interim Final Rule #1 – PPP as Amended by Economic Aid Act (Released 1/6/21)
• Interim Final Rule #2 – PPP Second Draw Loans (Released 1/6/21)
• Procedural Notice – Modifications to SBA Forms 3506, 3507 and 750 CA (PPP only) (Released 1/8/21)
• Procedural Notice - SBA Procedural Notice on Repeal of EIDL Advance Deduction Requirement (Released 1/8/21)
For more information and updates, visit SBA.gov/PPP or Treasury.gov/CARES
5. For the General Public
How To Apply
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating in the program. Click Here to find your Local SBA District Office .
The best sources for current available information on the Paycheck Protection Program:
At SBA website: Coronavirus (COVID-19): Small Business Guidance & Loan Resources (sba.gov) or
Treasury’s website: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.
Most questions can be answered by the FAQ and the “Interim Final Rule” documents posted there.
Docket No. SBA-2021-0001
DEPARTMENT OF THE TREASURY
Business Loan Program Temporary Changes; Paycheck Protection Program as Amended
by Economic Aid Act
AGENCY: U. S. Small Business Administration; Department of the Treasury.
ACTION: Interim final rule
Docket No. SBA-2021-0002
Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
Comments on the Paycheck Protection Program Interim Final Rules must be submitted to https://www.regulations.gov/, unless the comment includes confidential business information, in which case, the comment should be directed to firstname.lastname@example.org.
For a list of additional COVID-19 assistance options, please see: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options
To report waste, fraud, or abuse: Contact the SBA Office of Inspector General’s hotline at 800‑767‑0385 or by email at OIGHotline@sba.gov