Insights into the world of small business lending and development

Guide to understanding what’s in the new federal relief package for small businesses

Congress approved a new federal relief package to help struggling small businesses weather the coronavirus pandemic, putting an end to months of ongoing negotiations and congressional inaction. Below is a summary of the key pieces of the legislation that can support the recovery of small businesses.

What’s in the new stimulus package?

  • Paycheck Protection Program (PPP) borrowers can apply for a "second round" of PPP loans (depending on eligibility).
  • There are additional expenses you can include as part of your non-payroll costs for the loan forgiveness program.
  • The 60/40 loan terms still apply for both new and second-time PPP borrowers. 

PPP: first-time borrowers

  • $284.5 billion total amount authorized for PPP.
  • First-time PPP borrowers are eligible to apply.
  • Applications open January 11 for first-time borrowers, and ‘second draw’ borrowers can apply starting January 13.
    • Nonprofit community development institutions will solely be accepting applications initially.
  • The covered period is extended through March 31, 2021.
  • 60% payroll rule still applies.

PPP “second draw”

  • If you previously applied for and received a PPP loan, you are eligible to apply for a second PPP loan.
  • Maximum loan amount: $2 million.
  • Businesses must have fewer than 300 employees per location.
  • Businesses must have used the entirety of the first PPP loan.
  • Businesses must demonstrate a 25% reduction in revenue for a quarter this year compared to the same quarter last year.

PPP Loan forgiveness

  • For loans of $150,000 and less, a borrower can:
    • Sign and submit to the lender a one-page certification that the SBA will create.
    • That one-page form will only require the borrower to provide:
      • a description of the number of employees the borrower retained because of the loan 
      • and the estimated amount of the covered loan spent on payroll costs + the total loan amount
    • It will also require you to attest that you accurately provided the required certification and that you complied with the PPP loan requirements (60/40 rule).
  • Note: You must retain all employment records for 4 years and non-payroll records for 3 years after submitting your forgiveness application in the event of an audit. 

Eligible expenses for PPP loan forgiveness

  • Here are some additional expenses eligible for forgiveness that were not covered previously:
    • Covered operations expenditures: Payment for any software, cloud computing, and other human resources and accounting needs.
    • Covered property damage costs: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
    • Covered supplier costs: Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations.
    • Covered worker protection expenditure: Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19.
  • Previous PPP loan recipients can also claim these costs as covered expenses, pending the 60% payroll rule and as long as the loan has not already been forgiven.

Other PPP considerations

  • This legislation undoes a IRS ruling regarding the tax deductibility of PPP expenses, and clarifies that qualified expenses made with forgiven PPP loan proceeds can be deducted from your taxes. The legislation states that small business assistance—including PPP forgiven funds, emergency EIDL grants, Targeted EIDL Advances, certain loan repayment assistance, and grants for shuttered venues—will not be taxable as income and clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of this small business assistance.
  • The EIDL Advance will not be reduced from your forgivable PPP amount. This applies to existing borrowers as well, though unclear what the process will be. 
  • All businesses obtaining their first or “second draw” PPP must have been in business as of Feb. 15, 2020. 
  • Restaurants and other food and accommodation businesses can qualify for 3.5x monthly expenses for PPP second draw. 
  • Clarifies covered period will be between 8 and 24 weeks.
  • Clarifies other group insurance (such as vision, dental) are eligible PPP expenses.
  • Clarifies rules for seasonal businesses. 

Emergency Injury Disaster Loan Advances

  • If your business is located in a low-income community, you can receive up to $10,000 in EIDL advances. 
  • If you already received an advance during the first round of funding, you can receive the difference between $10,000 and the amount you were originally advanced. 
  • If you haven’t already received an EIDL advance, you can get the full $10,000.
  • Repeals requirement of CARES Act: Advance amount be deducted from PPP forgiveness amount

Other Small Business Administration debt relief 

  • All borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of deferral on principal and interest, starting in February 2021. 
  • Underserved borrowers, namely the smallest and hardest-hit, will receive an additional five months (eight total) of relief.
  • SBA payments of P&I on the first 6 months of newly approved loans will resume for all loans approved between February 1 and September 30, 2021, also capped at $9,000 per month.
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