On Sunday, December 27, 2020, President Trump signed the second covid relief bill for $900 billion. This is the second-largest relief bill in U.S. history after the $2 trillion CARES bill passed by Congress in March 2020. This new bill allocates $284 billion to the Paycheck Protection Program for federally-backed forgivable loans to support small businesses.
This bill outlines more strict eligibility guidelines than the previous bill. Loan receivers must use said loan within 8 to 24 weeks of granting. These new loans cap out at $2 million as opposed to the previous $10 million. While the Covid relief bill may be more strict, it also clarifies points of confusion with the previous PPP. It also offers items in aid of small businesses that were not included in the previous bill.
What Do You Need To Know?
- Congress has settled the dispute over whether expenses paid with the Paycheck Protection Program funds are tax-deductible. While the previous bill was confusing, Congress determined that any PPP or Economic Injury Disaster Loan (EIDL) funds used to pay for items that are usually tax-deductible will still be deductible for 2020.
- This means you will likely pay less in taxes for 2020. Because standard deductible expenses paid for with PPP or EIDL loans are still deductible and the government will not tax either form of the loan, even though small business loans normally are, your small business will most likely owe less in 2020 taxes. That’s certainly something we can all be happy about. But remember to track how you use these funds because both PPP loans and EIDL grants are auditable.
- Even if a small business received a loan in the first round of PPP loans, it is eligible to apply again for PPP2. A small business may apply again if it has 300 or fewer employees, have or will use the full amount of their previous PPP, and can show a decline of at least 25% in revenue from comparable quarters in 2020 and 2019. It gets better: if your small business returned its loan or received less than it was entitled to under PPP1, you can now request more funding. But you must spend at least 60% of this funding on payroll expenses.
- PPP2 will allow first-time borrowers from additional groups. These include businesses with over 500 employees, sole proprietors, independent contractors, other self-employed individuals. It also covers non-profits (includes churches), and hospitality/food-service businesses with fewer than 300 employees per physical location.
- Congress approved more expenses as forgivable under the PPP2. PPP1 covered costs such as payroll, rent, utilities, and some mortgage interest. These additional expenses forgivable under PPP2 include covered operational expenses like cloud software, sales and billing software, product delivery, etc. It also includes any expenses incurred from worker and facility protection measures, like personal protective equipment, in compliance with CDC guidelines. Other eligible expenses include property damage costs caused from the public disturbances in 2020 that are not covered under insurance. Finally, the PPP2 covers certain supplier costs that were essential to the business at the time the business placed the purchase and/or in fulfillment of a contract or a purchase order made to a supplier before or during the covered period for perishable goods.
- You may be eligible to receive the full EIDL Grant. Unfortunately, the Small Business Association’s funds ran out when they changed the original Economic Injury Disaster Loan Grant from $10,000 per business to $1,000 per employee during the first stimulus bill. But this round you may qualify for the full $10,000, minus any grants already received. But this time eligible businesses must align with more strict qualifications. These include having fewer than 300 employees, being located in a low-income community, and have suffered a revenue loss of over 30%. These are in addition to the original qualifications outlined in the CARES Act.
- You may be able to utilize the Employee Retention Tax Credit. While businesses largely overlooked this tax credit under the first relief package, the second one now allows businesses to use it in conjunction with the PPP2. This tax credit is refundable against up to 50% of qualified employment taxes that eligible employers paid between March 12, 2020, and January 1, 2021. Find out more here.
- The bill simplifies the forgiveness application process for any loans under $150k. Under the new criteria, you need only supply the lender with signed certification of how many employees you were able to retain because of the loan funds, what portion of the loan the business spent on payroll costs, and verification of the accuracy of the supplied information and compliance with the required record retention period. This should simplify the process for over 85% of PPP loans. The SBA will release this new application form in the next month, but until then businesses may use the current forgiveness-form 3508S.
- The new bill specifically allocates funds for Community Development Financial Institutions and Minority Depository Institutions. It sets aside $15 billion in funding for CDFIs and MDIs for low-cost and long-term capital investments. It also designates some of this money to the CDFI Fund to provide grants in support of other small businesses and non-profits.
What Doesn’t It Include?
It’s important to note that the loan package excludes certain businesses, including businesses dealing specifically with politics (i.e. a state political party). It also encompasses businesses that operate widely in China or have Chinese residents on their boards, or concert venues, theaters, and museums. These arts venues, though, may apply for a Shuttered Venue Operator Grant of up to $10 million. The application process for this grant is still in the works.
2020 was a tough year in more ways than one, but the Covid relief bill will provide some financial cushioning for small businesses who have fallen on hard times. And remember, like we mentioned before, be sure to keep detailed records of how any funds you receive are used in case of an audit down the road.
If you have any questions about how your small business can utilize the PPP2, contact us today!