New Relief Package Allows for a Second Draw PPP and Other Benefits for the Borrower
Businesses that have exhausted their initial PPP loan, have fewer than 300 employees, and are able to demonstrate at least a 25% drop in gross receipts in a quarter in 2020 relative to the same quarter in 2019, are eligible for the “PPP Second Draw”.
After what seemed like an eternity for most Americans, congress finally passed a 900 billion dollars relief package that will mostly benefit businesses that were hit the hardest and are struggling to survive.
“If your business is slightly off, let’s say you are 5-10% down each quarter over the past year, you don’t qualify. But if you are one of those small businesses who was shuttered for 4-5 months, and you have lost more than 25% of what would be your normal gross receipts then you qualify for the second draw of PPP,” said Neil Bradley, Executive Vice President and Chief Policy Officer at the U.S. Chamber of Commerce during a virtual meeting held on December 22nd by Jeanette Mulvey, Content Director of CO—.
In addition to the “second draw”, the new stimulus includes several changes to the original Paycheck Protection Program, including adjustments in eligibility, allowable expenses and tax treatment of those loans.
The maximum loan amount, which was previously 10 million dollars, is now 2 million dollars. The amount of money that you can borrow has mostly stayed the same, 2.5 months of your average payroll expenses; but if you are in the accommodations or food services industries, then you qualify for a loan that is 3.5 times your average monthly payroll. This will be very beneficial for small hotels, restaurants and food shops.
The PPP program is open through March 31st, 2021 or until the new funding is exhausted.
Are There Any Changes in Eligible Expenses?
Originally you were able to use the PPP funds to cover for payroll costs, mortgage interest, rent and utilities, those remain the same, but now congress has added four other categories:
· Business operation expenses, for example cloud computing, sales monitoring, and accounting needs
· Supplier goods needed to run your business
· Personal protective equipment, sneeze guards, creating outdoor spaces and other investments needed to comply with safety guidelines related to the pandemic
· and the fourth category, is related to property damage due to the rioting and looting that occurred in many parts of the country
All of those are now eligible expenses. But beware, “the one thing that didn’t change is the 60-40 rule, meaning that at least 60% of your loan forgiveness has to be for payroll costs,” said Bradley.
Are PPP Loans Taxable?
“They are not! This is a huge change that congress included in this legislation. Back when they first pass the PPP they said that if your loan is forgiven it doesn’t count as taxable income, but the IRS said they were not going to let you deduct the business expenses that you payed for with PPP funds,” explained Bradley. “Congress fixed this, so it is retroactive all the way back to the very beginning of the CARES Act. It says that PPP loans aren’t taxable, and that the IRS can’t limit your deductions as a result of receiving a PPP loan.” This is great news for small businesses, because they were going to get really big tax bills that they weren’t expecting.
Other Important Changes
· Employee Retention Tax Credit: Under the old law if you took a PPP loan you couldn’t also get the employee retention tax credit, it was either one or the other. That’s changed. So, if you happened to be one of those small businesses who took advantage of the employee retention tax credit you can now apply for a PPP loan, or vice-versa.
· Live Venue Provision: As part of this package, there are 15 billion dollars to provide grants -not loans- to live venue operators; that is theatres, movie houses, museums, essentially arts and entertainment, as well as talent producers. “You do have to demonstrate a significant reduction in revenue as a result of the pandemic,” said Bradley. Live venues can receive a grant of up to 10 million dollars, or 49% of their 2019 gross receipts to help pay for a lot of the same costs that you would use a PPP loan for. You have to choose between this grant or the PPP loan, but the grant could be larger, and you wouldn’t have to pay it back, so it is worth looking into.
· EIDL Grants: This is a grant for 10,000 dollars you could receive and didn’t have to repay. “It used to be that if you had both a PPP loan and an EIDL grant they would take the amount of the EIDL grant off of your PPP loan forgiveness, they won’t do that anymore, so you’ll get the full benefit of the EIDL grant and the full value of your PPP loan forgiveness,” said Bradley.
Keep in mind that all these changes apply to all loans no matter when you got it, they are retroactive to the beginning of the CARES Act.