Second Round of PPP Loans to Provide Covid-19 Relief to Small Businesses

Congress has approved $900 billion worth of Covid-19 relief under the Consolidated Appropriations Act of 2021. The Act includes $284 billion to be used for a second round of PPP loans for small businesses. Businesses will be able to apply for a second PPP loan, but will be subject to stricter eligibility requirements to prioritize funding to those who missed out on the first round of loans.

Besides the additional Paycheck Protection Program Funding, the Consolidated Appropriations Act of 2021 has also amended some of the previous PPP regulations; contact a business attorney in California to comply with the PPP regulations. While the SBA is yet to release their guidance on the new PPP funding, here is what we know so far.

Eligibility Requirements to Apply For a Second PPP Loan

For businesses to be eligible for a second PPP loan, they will need to meet these criteria:

They will need to be a small business of 300 or fewer employees. As with the first round, alternative size standards may be released.
The business used their entire first PPP loan.
The gross revenue of one of their quarters in 2020 was down at least 25% compared to the same quarter in 2019.

These eligibility requirements only apply to those applying for a second PPP loan.

Additional Uses of a Forgivable PPP Loan

Congress amended the expenses a PPP loan can cover and still be forgiven. In addition to being used for rent, mortgage interest, utilities, and payroll expenses, a PPP loan may be used for:

Costs of maintaining an existing contract with suppliers essential to business operations
Business software or computing services necessary for business operations
Any costs not already covered by insurance or other compensation for property damage from the public disturbances of 2020. This includes any costs incurred by property damage, vandalism, or looting.
Changes that allow businesses to comply with government-issued Covid-19 guidelines that make their premises safe for workers.

A startup company should contact lawyers for small business owners to assist with the PPP application.

Updated Maximum Loan Cap

For first time PPP loan applicants, the maximum loan cap will remain at $10 million. For second time PPP loan applicants, the maximum loan cap has been reduced to $2 million.

How to Calculate Your Maximum PPP Loan Amount

First, calculate your monthly average payroll costs. Businesses may calculate this based on either the 12 month period prior to receiving their loan or the 2019 calendar year.

Hospitality businesses like hotels and restaurants with NAICS Code 75 multiply their monthly average payroll costs by 3.5. All other businesses multiply their monthly average payroll costs by 2.5. This will be the maximum PPP loan your business will receive.

How a PPP Loan Will Affect Taxes

As with the first round of PPP loans, the loan amount will not be calculated as taxable income. If the loan increases the borrower’s income tax basis, then it will remain, even for a forgiven PPP loan.

Congress has changed previous advice regarding expenses paid for by a PPP loan. Under new guidelines, they will be tax-deductible if paid by a forgiven PPP loan. This advice applies to previous, existing, and new PPP loans.

PPP Loan Forgiveness

New Covered Period Calculations

For the second round of PPP loans, businesses may calculate their own covered period. A covered period is the period of time where the business must spend the funds if they are to qualify for loan forgiveness. The only restriction on the covered period a business may select is it must be between 8 and 24 weeks, inclusive. This way businesses can better control their workforce reductions after the exhaustion of the PPP funds.

EIDL Advances Will Not Affect PPP Loan Forgiveness

Congress has confirmed that recipients of an EIDL Advance will no longer have their PPP loan forgiveness reduced by the amount of their EIDL Advance. The SBA has stated they will release guidelines on how those who received an EIDL Advance and a PPP loan during the first round can amend their forgiveness applications.

Simplified Forgiveness Applications for Loans Under $150,000

For recipients of loans less than $150,000 the forgiveness application will be simplified to a one-page self-certification. Applicants will only have to fill out the following information:

The total amount of their PPP loan
How many employees they retained due to the PPP funds
The amount of the loan spent on payroll costs

This is simplified from the current forgiveness application which requires applicants to show their working for the figures they provide. The self-certification process still carries the same SBA liability for false certifications so applicants are advised to take care when performing calculations.

As with before, applicants must keep their payroll and employment records for four years after they submit their application. They must also keep all records related to the forgiveness application and PPP loan for three years after they submit their application.

Newly Eligible Businesses and Organizations

In the Consolidated Appropriations Act of 2021, some businesses who were ineligible for the first round of PPP loans will be eligible for this round.

Section 501(c)(6) Not-For-Profit Organizations

These types of not-for-profit organizations are eligible if they meet the following criteria:

They employ 300 employees or fewer
Lobbying activities account for 15% or less of the organization’s activities
Lobbying activities account for 15% or less of their revenue
The total cost of lobbying activities in the 19/20 tax year was less than $1 million.

Businesses in Bankruptcy

Businesses in bankruptcy are now eligible to apply for Payment Protection Program loans, subject to the following conditions:

Any unforgiven portions of the PPP loan must be repaid as per the terms of the loan
The loan will be treated as administrative claims in the bankruptcy case
Chapter 11 cases must pay any unforgiven portion and may not “cram down” the costs.