PPP Update for January 2021

BY Admin

Here is an update for businesses on the new Paycheck Protection Program (“PPP”) Loan package (“PPP Round 2”) in light of the passage of the Consolidated Appropriations Act of 2021.

  • Expenses Financed with PPP Loans are Deductible. The new law specifically allows for the deduction of expenses financed with PPP loans. The IRS had previously said that expenses related to tax free, forgiven PPP loans would not be deductible.
  • Borrowers with PPP loans of $150,000 or less can use a simpler loan forgiveness form.
  • PPP Round 2. The new law also provides for the ability to apply for a second forgivable PPP loan.
    • In general, you can apply for a second PPP loan of up to 2.5 times the average monthly payroll costs in the 12 months prior to the loan or the calendar year 2019, capped at a maximum loan of $2MM
      • A borrower can use the calendar year 2020 instead of the 12 months preceding the loan
      • Borrowers in the hospitality or food services industries (NAICS code 72) may receive a second PPP loan of up to 3.5 times average monthly payroll costs.
      • PPP Round 2 funding may open as early as January 11. Please contact your banker for more details and their application form/process
        • The PPP Round 2 application period is open until March 31, 2021
    • To qualify for a second PPP loan you need to have:
      • 300 or fewer employees.
      • Used or will use the full amount of your first PPP loan.
        • It appears only a certification from the borrower on the loan application will be needed – that the funds from the first PPP loan will be used before the 2nd PPP loan is disbursed to the borrower. Forgiveness of the first loan by the time of the second application does NOT appear necessary.
      • A 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
        • As an alternative, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
    • Under PPP Round 2, first time PPP borrowers can get a loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan (2020) or the calendar year 2019, capped at a maximum loan of $10MM
    • As with PPP round 1, borrowers need to spend at least 60% of the PPP money on payroll and payroll related benefits
    • Borrowers can choose any covered period between 8 and 24 weeks – covered period meaning the period of time you have to spend the proceeds of the loan in order to qualify for forgiveness.
    • More non payroll expenses (in addition to rent, mortgage interest and utilities) can be used towards the non-payroll part of loan forgiveness:
      • Covered worker protection and facility modification expenditures, including personal protective equipment (PPE), to comply with COVID-19 federal, state or local government health and safety guidelines.
        • This includes PPE, physical barriers that were put in place (like sneeze guards,) expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows.
      • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
        • Generally, these are costs due under a contract in effect before the covered period or contracts for perishable goods at any time during the covered period.
      • Covered operating costs such as software and cloud computing services that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses
    • Documentation needed the with PPP Round 2 loan applications (SBA Form 2483-SD – 2nd PPP loan draw; Form 2483 – 1st PPP loan draw)
      • Generally, the same as PPP Round 1 – quarterly payroll tax reports for the proper period and evidence of retirement and health insurance contributions.
      • PPP loan applications for less than $150,000 do not need to submit evidence of the 25% revenue reduction with the application but DO have to provide it with the PPP forgiveness application.

US Treasury Webpage with PPP Guidance and Forms