On December 21, 2020, as part of the Consolidated Appropriations Act, 2021, Congress passed significant changes to the Paycheck Protection Program (PPP). This includes changes to existing loans and a second draw of PPP funds for eligible borrowers.
Full Deductibility of Expenses
The legislation provides full deductibility of covered expenses paid by PPP loans without any qualification. It also maintains that the forgiveness is not a taxable item.
Additional Covered Uses of Funds
PPP funds can be used for each of the following additional expenditures. The Act specified that these additional categories did not apply to loans already forgiven.
- Covered Operations Expenditures – including business software or cloud computing services that facilitate business operating, product delivery, processing payment or tracking of payroll expenses, human resources, sales and billing functions, accounting, tracking of supplies, inventory, records and/or expenses.
- Covered Property Damage – means a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.
- Covered Supplier Costs – business goods purchased pursuant to a contract for essential operations.
- Covered Worker Protection Expenses – business alterations done to comply with established guidelines by the Department of Health and Human Services, Centers for Disease Control or the Occupational Safety and Health Administration – including maintenance of standards for social distancing, sanitation, ventilation systems, physical barriers.
Covered Period Selection
Borrowers can select a covered period not less than eight but not more than 24 weeks for their forgiveness applications. This means if a borrower wants to select a 16-week period and not the full 24, this is allowable.
Simplified Application for Loans under $150,000
Loans obtained that were under $150,000 will have a one-page signature form to request forgiveness of the loan. It will only ask the number of employees the business was able to retain, the amount of loan spent on payroll, and the total amount of the loan. The borrower will certify the funds were spent appropriately under the program and will not have to submit any documentation.
Second Draw Paycheck Protection Program Loans
The criteria for Second Draw loans is a little different than the original loans were. It is anticipated the SBA will provide more guidance on those loans, but these are the key points from the legislation:
- Only businesses under 300 employees are eligible for second draw loans, down from the original 500.
- Businesses will have to demonstrate a 25% reduction in gross receipts in 2020 from the same calendar quarters of 2019.
- Businesses with NAICS codes beginning with 72 qualify for 3.5 times average monthly payroll, all others qualify for 2.5 times average monthly payroll, same as the first loans.
- The maximum loan is $2 million.
- Borrowers must have already received a PPP loan and already used their first-round funding or anticipate using their funding by the time the second loan is received.
- 501(c)(6) organizations and news organizations that did not qualify for the first round of funding will be able to apply for new PPP loans.
According to the legislation, the first round of guidance on Second Draw PPP loans must be published within 10 days.