New COVID Relief for Business Owners
On Monday, December 21st, 2020 Congress passed a bill that includes major provisions that will help small businesses. Additionally, Congress corrected several issues surrounding the last round of COVID help. Below is a broad overview of what the bill included. We have tried to summarize many of key provisions that directly impact our clients. As of the writing of this blog, the bill is not signed and the regulatory agencies have not yet started working on implementation. It will most likely be early January before we know more details. However, we wanted to do our part to ensure everyone is informed.
Paycheck Protection Program Loans – Second Draw
Another round of PPP loans was included in the bill approved by the House and Senate and is awaiting the president’s signature. The final program details will be published in forthcoming Interim Final Rule (IFR). At this time is unclear how quickly the IFR will be issued, or when the SBA will have a published application and can begin processing requests. Once the timelines become clear, we will move quickly as we did in the spring to ensure you are informed and in position to take full advantage of the program.
Here are the program details we know today as outlined by one of our preferred lenders:
- Maximum new loan amount of $2 million.
- Eligibility. In order to receive a PPP loan under this section, an eligible entity must:
- Employ not more than 300 employees;
- Have used or will use the full amount of its first PPP loan; and
- Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Provides applicable timelines for businesses that were not in operation in Q1, Q2, Q3, and Q4 of 2019. Applications submitted on or after January 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020.
- Eligible entities include businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives. Everyone who qualified in the initial round of PPP funding will qualify again.
- Ineligible entities include: entities listed in 13 C.F.R. 120.110 and subsequent regulations except entities which have otherwise been made eligible by statute or PPP implementation guidance, including nonprofits and religious organizations. For instance – churches.
- Any business that qualifies based upon the above can apply for a PPP loan in this round. If you didn’t get a PPP loan before, you can get your first one in this round. If this is your first PPP loan, it appears that the original loan limit ($10 million) and employee size limits (500) apply.
- Loan terms – How much can I get? In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs during the year prior to the loan or the previous calendar up to a maximum of $2 million, subject to the following exceptions:
- Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019, through February 15, 2020.
- New entities may receive loans of up to 2.5X the sum of their average monthly payroll costs.
- Entities in industries assigned to NAICS code 72 (Accommodations and Food Services) may receive loans of up to 3.5X average monthly payroll costs.
- Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.
- Waiver of affiliation rules that applied during initial PPP loans apply to a second loan.
- An eligible entity may only receive one PPP second draw loan.
- Fees are waived for both borrowers and lenders.
- For loans of not more than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits its loan forgiveness application.
- At least 60% of PPP proceeds must be spent on payroll.
- Approved eligible expenses expanded from the original PPP definition. New eligible expenses are added.
- All original eligible expenses still qualify – utilities, rent, etc.
- Section 304: Additional Eligible Expenses. Makes the following expenses allowable and forgivable uses for Paycheck Protection Program (PPP) funds:
- Covered expenditures for operations. 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. Payments to a supplier pursuant to a contract, purchase order, or order for goods that was in effect prior to taking out the loan and was essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Investments in personal protective equipment and other adaptive costs to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
- Covered period. Borrower gets to determine the timeline in which they spend the loans. Period of time can be between 8 and 24 weeks.
- You can get a ‘second draw’ PPP loan even if your original PPP loan has not yet been forgiven.
How can you make sure you’re well prepared when the PPP application process is finalized?
Be preparing your quarterly 2020 financials and comparing them to the same quarters in 2019 to see if you qualify. Contact us if you need help compiling your financials to engage our accounting team for a compilation project.
There are other matters covered in this bill that will help resolve some of the challenges created by the CARES Act. We’ve highlighted a few of those below:
EIDL Advance Issue Solved
The SBA will not be deducting EIDL Advances from PPP Forgiveness anymore. It is not certain how the SBA will make whole PPP borrowers who already received forgiveness and who had their EIDL Advances withheld. Section 333 expressly states that borrowers will be made whole. More to come on how the SBA accomplishes this directive.
PPP Forgiveness Simplified for Loans Less than $150,000
The SBA is still working on a simplified PPP Forgiveness Application for borrowers with loans of $150,000 or less. The application will be one page of certifications and attestations from the borrower. Borrowers will still be required to maintain documentation that PPP proceeds were spent according to the PPP program rules.
PPP Paid Expenses Are Deductible
Congress overruled the IRS and specifically stated that business expenses paid with PPP proceeds are deductible business expenses. This is a huge win for PPP borrowers.
Similar to the CARES Act from the spring of 2020, we fully expect daily changes as this bill, and its application will evolve over time. Team NextGen is up for the new challenge and will be here to help you navigate these uncharted waters once again.
Source: www.firstoklahomabank.com