PPP Loan - 2nd Round
The United States government has recently passed a second stimulus package in hopes it will help jumpstart the economy. Good news - The package brings a 2nd round of PPP loans, but this time the government hopes to target small businesses more. In an effort to simplify the complex loan, we have gone ahead and gathered some of the key points for business owners to get a high level understanding of their options.
Highlights
Business owners applying must be able to prove loan necessity
If approved for the loan, funds received must be used before 24 weeks has elapsed
60% of funds received must go towards payroll expenses
Remaining funds can go towards eligible expenses
Covered Operations Expenditures: payments for business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, HR and billing functions, or account or tracking of supplies, inventory, records and expenses
Covered Property Damage Costs: costs related to property damaged and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
Covered Supplier Costs: expenditures to a supplier of goods that are essential to the operations of the entity at the time at which the expenditure was made and is made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
Covered Worker Protection Expenditures: operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date which the national emergency declared by the president expires related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19. These expenses appear to include PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows.
Maximum loan amounts have been capped at $2m - compared to $10m in previous structure
Will not be included as taxable income - Expenses paid with the proceeds of a PPP loan that is forgiven are now tax-deductible. (Includes funds received from PPP Round 1)
To be considered eligible, business employee count cannot exceed 300 - compared to 500 in previous structure
There are exceptions to this criteria, work with your CPA or a bank advisor to see if you will still be eligible
Must be able to prove at least a 25% drop in revenue from the 4th quarter of 2019
Gross receipts during Q1, Q2 or Q3 2020 that were at least 25 percent less than the gross receipts from the same quarter in 2019 (applicants may use Q4 2020 if they apply after January 1, 2021)
Expansion of employee retention tax credit
Business owners are allowed to get "2nd Draw" if business already received previous PPP support during round 1
However, if a business received funds from the previous PPP loan, they must be able to show proof that all previous funds have been used - There are exceptions to this criteria, work with your CPA or a bank advisor to see if you will still be eligible
Restricted to businesses specializing in political or lobbying activities and extensive dealings in China or who have China residents on their boards
Concert venues, theaters and museums are not eligible for new Paycheck Protection Program loans, but can apply for special “Shuttered Venue Operator Grants” worth up to $10 million.
Any income tax basis increase that results from the borrower's PPP loan will remain even if the PPP loan is forgiven
Recommended - Hold on to all documents supporting PPP loan for a minimum of 3 years
Not-for-profit
Not-for-profit organizations will be eligible to apply and receive PPP loans in the 2nd round
Includes business types - For a full list, please consult with your CPA or a bank advisor to see if you will still be eligible
Business Leagues
Chambers of commerce
Real estate boards
Boards of trade
Professional football leagues
In order for not-for-profit organizations to qualify:
They do not receive more than 15 percent of their receipts from lobbying activities
Lobbying activities do not comprise more than 15 percent of the organization's total activities
The cost of lobbying activities did not exceed $1 million during the tax year ending February 15, 2020
The organization does not employ more than 300 employees
Forgiveness Applications
PPP loans will continue to have an opportunity to be forgiven
If received less than $50k from the PPP Loan Round 1
Requires documentation of
Description of how much loan money was spent on payroll
How many employees the recipient was able to retain as a result
If a business is approved for the 2nd round of PPP loans and received less than $150k
No documentation needs to be submitted but should keep it on hand in case of an audit down the line.
Recommended - Hold on to documentation for minimum of 4 years
Business owners will take a simplified approach by self-certifying
One-page certification that includes a description of the number of employees the eligible recipient was able to retain because of the loan
The estimated total amount of the loan spent on payroll costs
The total loan amount
Loan Amounts
There is a simple calculation and a more complex equation - work with your CPA or a bank advisor to see what makes the most sense for your situation - Note that restaurants and businesses in the hospitality industry have a higher factor/multiplier
Restaurants & Hospitality
(Payroll Cost) * 3.5 = total draw not to exceed $2m
Other Business Types
(Payroll Cost) * 2.5 = total draw not to exceed $2m
Please keep in mind, this post is meant as a high level overview, and not all encompassing. We encourage you to work with your CPA or a bank advisor to better understand if applying for the loan makes sense for your situation.