PPP Round 2: What Small Businesses Need to Know

January 4, 2021
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Congress approved another round of coronavirus relief, meaning additional Paycheck Protection Program funding and updates regarding covered uses of PPP funds. 

Learn more about how this could affect your business. 

Additional $284 Billion for PPP Applicants

After months of discussion and negotiation, Congress recently approved a $900 billion COVID-19 relief package under the Consolidated Appropriations Act, 2021 (CAA 2021). Included in this new coronavirus aid package is $284 billion dedicated to a second round of Paycheck Protection Program (PPP) funding. 

The new package includes several updates that will impact small businesses across the country. As businesses continue to close their doors, both permanently and temporarily, this funding comes at an especially crucial time. 

Highlights of Round 2 of the Paycheck Protection Program 

  • Applications are open to new and existing borrowers of PPP loans 
  • Updates to loan eligibility for 501(c)(6) not-for-profit organizations
  • Updates to loan eligibility for borrowers in bankruptcy 
  • Expansion of covered expenses 

Who can apply for additional PPP funding?

For round 2 of the PPP funding, both first-time and second-time qualified borrowers are eligible to apply. 

First-time borrowers can apply for loans up to $10 million.

PPP applicants who are seeking funding in addition to what they received earlier in the year (also known as Second Draw Loans) are eligible for loans up to $2 million provided they meet the following requirements:

  • Employ fewer than 300 people (down from 500)
  • Have used or will use the full loan amount granted to them in their first round of PPP funding
  • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019 (if a business was out of operation for a portion of 2019, they can use different quarters to compare gross receipts.)

Calculating Loan Amounts

Second Draw PPP loan borrowers can calculate their maximum loan amount by multiplying 2.5x their average total monthly payroll in:

  • The one-year period before the date on which the loan is made, or 
  • The calendar year 2019

The maximum loan amount for Second Draw borrowers has been reduced to $2 million, down from $10 million in the first round. Similar to the first round, seasonal employers calculate their maximum loan amount differently. 

Borrowers of a Second Draw PPP loan with North American Industry Classification System NAICS Code 72 (e.g., hospitality, restaurants, hotels, etc.) are permitted to use a 3.5x multiplier of their average monthly payroll costs to calculate their maximum loan amount. These loans are also subject to the $2 million limit. 

Expansion of Covered Uses of PPP Funding

In addition to approving more PPP funding, Congress also expanded businesses’ covered uses for which PPP money can be used. This applies to both existing PPP loans and new loans. 

Previously covered uses are still included:

  • Payroll
  • Rent
  • Covered mortgage interest
  • Utilities 

Covered uses for Second Draw loans and new loans for first-time borrowers now include: 

Operations Expenditures

  • Payments for business software or cloud computing service that facilitates business operations
  • Accounting fees
  • Product or service delivery
  • The processing, payment, or tracking of payroll expenses
  • HR and billing functions
  • Account or tracking of supplies, inventory, records, and expenses

Property Damage Costs 

Costs incurred from vandalism, looting, or public disturbances that occurred during 2020 that were not previously covered by insurance or other compensation.

Worker Protection Expenditures

PPP funding now covers operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA, or any state or local government starting March 1, 2020 and ending on the date which the national emergency declared by the president expires. 

Equipment and supplied that keep a business in compliance with standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 may be covered by PPP funding. These could include:

  • PPE
  • Physical barriers that were put in place
  • Expansion of indoor/outdoor space
  • Ventilation or filtration systems
  • Drive-through windows

Spending to suppliers that covered expenditures essential to the business operations when the outlay occurred is now considered covered use. (e.g., restaurants’ purchases of perishable goods)

Crucial Tax Changes

Under the new legislation, forgiven PPP loans will be completely tax-free. Any business expenses paid for with PPP loans that would normally be tax-deductible will continue to be deductible.

Specifically, the updated language says, “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, because of the exclusion from gross income provided.” (Section 1106 of the CARES Act.)

This provision applies to loans under both the original PPP and subsequent PPP loans.

Forgiveness Update for EIDL Advance Recipients 

First-time PPP borrowers that received an EIDL Advance had that amount subtracted from their total forgiveness. However, under the new provisions in this relief package, EIDL Advances will no longer reduce PPP loan forgiveness. 

The Small Business Administration has indicated that borrowers that already received forgiveness and had their EIDL Advance deducted from such forgiveness may be able to amend their forgiveness applications. We expect further clarification regarding this matter to release soon. 

Borrowers must still use at least 60% of the PPP funding on payroll expenses over a covered period of either 8 or 24 weeks to receive total forgiveness. The other 40% can go towards the covered uses outlined above. 

When will the new funds be available?

The SBA must establish and release regulations on the new PPP funding no later than 10 days after Congress signed the legislation. After that, the program will reopen for applications and will run through March 31, 2021. 

If COVID-19 impacted your business, it’s critical that you stay updated on the second round of PPP funding. Whether you’re a first-time borrower or are seeking a Second Draw loan, the lending program’s rules regarding eligibility, covered uses, and forgiveness have changed. 

Work with the professionals at 1-800Accountant to navigate the new round of PPP funding. Our expert accountants will continue to keep you informed as new details and guidance emerge regarding COVID-19 relief. We’re here to help you overcome the challenges you’ve faced and work towards a better 2021.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.