On Dec 22, 2020, the US Congress passed a crucial spending bill for businesses affected by the coronavirus pandemic. The bill included significant additions and revisions to the PPP (Paycheck Protection Program). On Dec 27, 2020, President Trump signed this bill.
What is the highlight? Some small businesses will qualify for a second Paycheck Protection Program loan. You should know that the latest round of PPP loans for small businesses affected by the COVID-19 pandemic is called “second draw loans.”
Although the new rules for the second draw loans for small businesses are familiar, note that they have considerably changed from the original program. This is why if you are a small business owner, you have to quickly get up to speed regarding who is eligible. If your small business didn’t get a PPP loan last year, you might be eligible to apply for the first PPP loan in 2021.
On the other hand, if you obtained a PPP loan last year, you might qualify for a second PPP loan provided your small business sustained a revenue loss in 2020. Besides offering the second draw of loan financing for eligible businesses, this legislation also includes many favorable changes and revisions to loan-forgiveness taxation.
It also adds a simplified single-page forgiveness application for all loans with a value of $150,000 or less. The legislation also offers small businesses facing extreme revenue losses the chance to easily apply for a second loan.
There is no doubt that the relief bill provides numerous financial opportunities for small businesses affected by the coronavirus. For example, for a business with 300 employees or fewer, there is an opportunity to get a second PPP loan.
Highlights of the New Legislation
Important highlights from the latest relief legislation are as follows:
- Another round of forgivable PPP loans for small businesses
- Stimulus checks of $600
- Relaxation in forgiveness criteria and conditions for PPP loans of up to $150,000
- Up-to-date information regarding the deductibility of various expenses that you pay using the proceeds of your forgiven PPP loans
- Assistance in the form of $300 a week supplemental unemployment insurance
- Direct and streamlined funding of coronavirus-related healthcare needs as well as support for impacted industries
Paycheck Protection Program – A Summary
You may know that the Paycheck Protection Program (PPP) is an excellent relief program comprising federally-guaranteed loans for small businesses via the US Small Business Administration for organizations impacted by the coronavirus.
Remember that the various loan forgiveness provisions in the bill for a second loan tend to mirror those under the US Treasury Department’s CARES Act and related guidance and legislation.
Did you know that during the specified loan forgiveness period for your second PPP loan, your business can apply for forgiveness of rent, payroll costs, and debt obligations? However, keep in mind that small businesses borrowing a second loan have to follow the important 60/40 rule, with 60 percent of forgivable loan payments for payroll expenses and 40 percent for non-payroll expenses, as specified in the latest PPP Flexibility Act.
If your business is not eligible for the second PPP loan, don’t worry, as the expanded or updated permitted uses for a PPP loan present an excellent opportunity for your business to spend the remaining loan funds.
The best thing is that PPP loan borrowers can use PPP funding for specific covered operation expenditures, covered supplier costs, covered property damage expenses, as well as covered worker protection costs and expenditures, and all of them are also eligible for loan forgiveness. And that is not all; if you are a PPP loan borrower, it is likely that you’ll be able to deduct any payments you make with PPP loans from your income tax returns (federal).
Forgiveness Terms for Second Draw Loans
You will be happy to know that second draw loans for eligible borrowers will qualify for 100% loan forgiveness provided that during the eight to 24-week period after loan disbursement:
- You maintain compensation as well as employee levels in the same way as needed for your first draw loan
- You spend the loan proceeds on payroll expenses and other eligible costs
- You spend at least sixty percent of the loan proceeds on payroll expenses
PPP Loan Forgiveness and Additional Expenditures
For the second round of PPP loans, some additional business expenditures will be considered in determining the specific portion or percentage of PPP loans forgiven. These include:
- Payments that you make to any supplier or vendor for goods which are essential to your business if this obligation was binding before the covered period of your loan.
- Payments that you make to any supplier for various perishable goods and items during the covered period.
- Capital and operating costs that you incur in order to comply with published worker protection and health guidance.
- Payments for any cloud computing service or any business software that facilitates your business operations.
- Expenses related to any property damage or vandalism because of public disturbances and unrest that happened during 2020 that insurance and other compensation did not cover.
Simplified Forgiveness Application for Loans under $150,000
You should know that the new legislation obligates the SBA to design a simplified and brief PPP forgiveness application for all small businesses in the US with PPP loans under $150,000. Also, it is worth noting that lender banks and other financial institutions will not incur any penalties, provided these institutions acted in good faith.
And the simplified forgiveness application has to fit on a single page. It will include pertinent loan information and a certification from the small business owner that they used the funds properly and qualify for forgiveness. However, the application will not include any calculations and other supplemental information.
Loan Forgiveness Reduction through EIDL
You may know that the December 2020 stimulus legislation revised how EIDL (Economic Injury Disaster Loan) grants affect PPP loan forgiveness. Initially, the loan forgiveness amount would be lower if your small business enterprise received in an EIDL grant. The lawmakers have changed this, and it means that loan forgiveness won’t be reduced whether your business obtains an EIDL grant or not.
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