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have exhausted your first PPP loan and 1. you have no more than 300 employees, and
1. How Do New Changes Impact My Existing PPP Loan? Tax Treatment: The new law overturns the IRS ruling and provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans). Expanded List of Expenses Qualifying for Forgiveness: The list of expenses that PPP funds can be used for that qualify for loan forgiveness has been expanded to include: • “operations expenses” defined as payments for business software and cloud computing services and other human resources and accounting needs that facilitate business operations; • “supplier costs” defined as payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods, in effect at any time; • “worker protection expenses” defined as operating or capital expenditures to comply with public health guidance related to COVID-19, including things like drive-through windows and sneeze guards and the purchase of personal protective equipment (PPE); and •“covered property damage costs” defined as costs related to property damage or looting due to public disturbances in 2020 that are not covered by insurance or other compensation. Remember: It is still the case that not more than 40% of the forgiven amount can be for non-payroll costs, which may limit how much of your loan can be forgiven. Loan Forgiveness Reduction: If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant. Loan Forgiveness Period: The period for which expenses count toward loan forgiveness will begin on the date of loan origination and end on a date of your choosing that is between 8 and 24 weeks after origination. Simplified Application: If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness. (top) 2. I Exhausted My Initial PPP Loan, How Does This Help Me? The brand new “Second Draw” program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan. The program will make new loans through March 31, 2021 or until the new funding is exhausted. Eligibility: You are eligible for a second draw loan if you
2. you have experienced a greater than 25% reduction in gross receipts during the first, second, third, or fourth quarter in 2020 relative to the same quarter in 2019. Entities with significant ties to China are ineligible for a second draw loan. Loan Amount: The maximum loan amount is the average monthly payroll costs for the entity during the 12 months prior to the loan or, at the election of the borrower, 2019 multiplied by 2.5 (or 3.5 for employers in the accommodation and food service industry). Seasonal employers utilize average monthly payroll costs for a 12-week period between February 15, 2019 and February 15, 2020. A loan may not exceed $2 million. Loan Forgiveness: The amount of loan that can be forgiven is the lesser of: 1. Costs incurred or expenditures made between the date of the origination of the loan and ending on a date of your choosing that is between 8 and 24 weeks after origination for: (a) payroll costs, (b) qualifying mortgage interest or rent obligations, (c) covered utility costs, (d) covered operations costs, (e) covered property damage, (f) covered supplier costs, and (g) covered worker protection expenditures; or 2. Payroll costs for the same period divided by 0.60 (this serves as a cap on the total loan forgiveness to ensure that at least 60% of the total amount forgiven is for payroll costs). Like original PPP loans, the amount of loan forgiveness can be reduced if the borrower has (1) reduced the number of employees or (2) employee salaries by more than 25%. However, the same safe harbors that apply to original PPP loans apply to Second Draw loans. Learn more about these Safe Harbors in our Guide for PPP Loan Forgiveness. Set-Asides: $25 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood. (top) 3. What If I Never Received a PPP Loan? For new PPP applicants, the loan process will largely remain the same (check out our original PPP Guide) with a few major changes: • The PPP program is open through March 31, 2021 or until the new funding is exhausted. • If you are a 501(c)(6), a local news media organization, or a housing cooperative you may be newly eligible for a loan.
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The Business Review | January 2021
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