PPP2 is here. Prepare to act quickly!

On December 27, 2020, the president signed into law a sweeping stimulus program that included authorization for a second round of Paycheck Protection Program (PPP) loans for business owners deeply impacted by COVID-19. In addition, the program greatly expands the universe of eligible expenses for the forgiveness of both new PPP2 and existing PPP1 loans and simplifies the forgiveness application process for loans under $150,000.

Most significantly for many borrowers, the law also overrules the IRS and restores the tax deductibility of expenses used for PPP loan forgiveness!

Key Features for New PPP2 Loans

Eligible Entities, Previous PPP1 recipients must:

Have 300 or fewer employees,
Have experienced at least a 25% reduction in gross receipts in at least one 2020 quarter as compared to the same quarter in 2019,
Have used the full amount of their first PPP1 loan,
Not have been primarily engaged in political or lobbying activities,
Not have been organized in, be at least 20% owned by an entity domiciled in, or have a member of its Board of Directors who is a resident of China or Hong Kong,
Not be publicly traded.

Eligible Entities, First-time borrowers:

Same eligibility requirements of PPP1 basically (500 or fewer employees and other rules, etc.).
Substantial change to allow Sec. 501(c(6) business leagues, such as chambers of commerce and visitors bureaus, etc., to apply.
No requirement to meet the new 25% reduction in gross receipts test applicable to previous PPP1 recipients above.

Maximum PPP2 Loan Amount

It is limited to a maximum loan amount of $2 million. The basis for calculating the PPP2 loan amount is 2.5 times the average monthly payroll costs of 2019 or the 12 months prior to the loan date. There are clarifications needed regarding seasonal employers and new entities that did not exist in 2019.

For the accommodations & food service industry (NAICS 72), the multiple is 3.5 times instead of 2.5 times.

Simplified Loan Application Process for PPP2 Loans up to $150,000

Entities requesting PPP2 loans up to $150,000 will not be required to submit documentation supporting the decline in gross receipts during the application process. Rather, they will need to submit a certification attesting to the revenue loss to qualify. However, it is important to note that documentation to substantiate the revenue loss will be required to be submitted to the lender at or before the time of filing for forgiveness.

Key Changes that apply to both PPP1 and PPP2 Loans

Additional Eligible Expenses Qualify for Forgiveness

Forgiveness previously had been predicated on expenses incurred or paid for payroll costs, mortgage interest, rent or lease costs, and utilities. For any borrower who has not yet filed a forgiveness application, they may now include:

Covered operations expenditures – which include business software or cloud computing services, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.
Covered supplier costs – payments made to a supplier under a contract or purchase order for goods that are “essential to the operations of the entity” (leaving the definition of “essential” to the borrower). Note that the contract or purchase order must have been in place prior to the covered period of the existing PPP loan unless it was for perishable goods, which could be in place at any time.
Covered worker protection expenditures – any operating or capital cost incurred to comply with safety or sanitation requirements put in place between March 1, 2020, and the end of the national emergency (once declared). Such costs can include establishing a drive-through window facility, new ventilation or filtration systems, physical barriers, expanded space, or other assets relating to compliance with government requirements.
Covered property damage costs – costs related to civil disturbances not covered by insurance.
Payroll expenses – now expanded to include employer payments for group life, disability, vision, or dental insurance, which were previously excluded.

In short, there are many more business expenses that may be used for forgiveness support with these new, expanded eligible expenses.

Simplified Forgiveness Application for Loans up to $150,000

In October, the Small Business Administration (SBA) released Form 3508S for borrowers with loans under $50,000, which greatly simplified the process of applying for forgiveness, essentially requiring only a few certifications by the borrower that the loan was put to proper use.

With this new law, this simple forgiveness process has been expanded to any loan under $150,000. By January 20, 2021, the SBA is required to publish a new forgiveness form to be used by any borrower who has not yet filed for forgiveness and has a loan up to $150,000. This simple form will require the borrower to provide:

The number of employees retained by use of the loan,
The estimated amount of the loan used for payroll costs (note: the 60% rule remains in place),
The total loan amount,
An attestation that the loan was used in compliance with the law.

While the documentation required upon submission of the forgiveness application has been simplified, borrowers should note documentation must be maintained by the borrower to support the forgiveness application for three years (non-payroll costs) or four years (payroll costs only) in the event of a subsequent audit.

In addition, the law expressly prohibits lenders from requiring any documentation to be submitted by the borrower beyond the items above.

Other Significant Changes

Additional changes include:

The Economic Injury Disaster Loans (EIDL) advance amount will no longer be deducted from PPP forgiven loan amounts.
PPP borrowers are now eligible for Employee Retention Credits, providing the same wages are not used to calculate both the credit and forgiven loan amounts.
Allows PPP borrowers to reapply for maximum forgiveness amount available to them.

Stay Tuned

There are many important aspects of the new law that businesses need to understand, including payroll tax deferrals, Employee Retention Credit changes, and more. We will issue additional updates on these topics as details of the new law are processed.

Contact Us

Please contact us as soon as possible if you have questions or would like to engage our consulting team to assist you with any of these processes or opportunities.

Sincerely,

Marty Williams
Managing Partner