The months of pleas from American business owners have finally been answered. Congress has approved a Covid-19 relief package worth $900 billion. Of that package, $284 billion has been earmarked for a second round of PPP.
The PPP or Paycheck Protection Program helped many businesses keep their heads above water during the initial impact of the pandemic. The business law firm Nakase Wade of California Business Lawyer & Corporate Lawyer has published two comprehensive articles; the articles are 1) How to Apply for the Second Round of PPP Loans and 2) Financial Relief and Assistance for Businesses Affected by Covid-19.
Limits to Eligibility For a Second PPP Loan
Businesses who received a PPP loan during the first round can only receive a second PPP loan if:
They employ 300 or fewer employees. There may be alternative size standards issued in the near future.
The business used the entirety of their first PPP loan or have plans to use the remainder.
Their gross receipts during one of the first three quarters of 2020 were at least 25% than the same quarter in 2019. If applicants apply after the 1st of January 2020, they may calculate this using quarter 4.
These limitations do not apply to first time PPP borrowers.
At the moment, it is unclear if the first PPP loan requirement of proving that the economic climate is responsible for the necessity of the loan will be included in the application.
Maximum Loan Amount
For businesses applying for a second PPP loan, the loan will be capped at $2 million. First time PPP loan applicants will be capped at $10 million.
The calculations for second PPP loan maximum loan amounts can be calculated by multiplying one of the following by 2.5.
The average monthly payroll in the 2019 calendar year, OR
The average monthly payroll in the one year period prior to the date of the loan.
Maximum Loan Amounts for the Hospitality Industry
Businesses in the hospitality industry with NAICS Code 72, usually hotels and restaurants, may multiply their payroll by 3.5 instead of 2.5 if they are applying for a second PPP loan. They will still be subject to the $2 million cap.
Choose Your Own Covered Period
The covered period is the timeframe in which a PPP borrower must use the funds so that it may be forgivable. In round two, the covered period may be between eight and 24 weeks, whatever the borrower chooses.
Use of PPP Funds
Congress has increased the list of expenses the PPP loans can be used towards. In the first round, a PPP loan could be used only towards rent, mortgage interest, payroll, and utilities. In the second round, it can be used for those and:
Covered Property Damage Costs – Any covered costs related to property damage due to 2020’s disturbances. This includes any vandalism, looting, or damaged property that was not covered by insurance or any other compensation offered.
Covered Operations Expenditures – Any payments for software, products, or services necessary for the day to day operations of the business. This includes business software, tax software, HR or billing software, cloud services, or inventory tracking software.
Covered Supplier Costs – Payments to suppliers whose products or services are essential to business operations or were essential at the time of payment. This also covers any suppliers whose contracts are still in effect from a time when their products or services were essential to the business.
Covered Worker Protection Expenditures – Any costs a business incurs to follow health and safety guidance made by a government entity from the 1st of March until the end of the national emergency. This includes costs related to sanitation requirements, PPE, expansion of premises, physical barriers, social distancing measures, drive-through windows, or filtration and ventilation systems.
Forgiven PPP loans will not count as taxable income. This doesn’t just count the second round of PPP loans; it includes prior and exiting PPP loans. However, any resulting increase in income tax basis will remain whether or not the PPP loan is forgiven.
EIDL Advances Do Not Reduce Forgiveness
Previous PPP guidelines reduced the PPP loan forgiveness of businesses that received an EIDL Advance by the amount of the advance received. However, under the new Act, PPP loan forgiveness will not be reduced by the amount of an EIDL Advance. The SBA is awaiting guidance whether borrowers in the first round of PPP loans can have their forgiveness amended if it was reduced by an EIDL Advance.
Simplified Forgiveness Applications for Loans Under $150,000
The SBA will simplify forgiveness applications to one page for borrowers of under $150,000. This simplified application will only require the following information:
Number of employees retained due to the loan
Total loan amount
The estimated total of the loan amount spent on payroll costs
All the rules still apply, and self-certified responses will receive a heavy penalty if they are found to be false. All borrowers must still keep their employment records for four years from the date of forgiveness application submission. Any other records relating to the PPP loan and forgiveness application must be kept for three years from the forgiveness application submission.
Eligibility for Section 501(c)(6) Not-for-Profit Organizations
Under the second round of PPP loans, Section 501(c)(6) not-for-profit organizations can apply for PPP loans. Some examples of these organizations are:
Chambers of commerce
Professional football leagues which are not for profit
Real estate boards
These types of organization are only eligible if:
They receive less than 15% of the proceeds from lobbying activities
Lobbying activities count for less than 15 per cent of the organization’s activities
The total cost of lobbying activities is less than $1 million during the tax year ending the 15th of February 2020
The organization employs 300 or fewer employees
PPP Loans in Bankruptcy
In the second round of PPP loans, businesses in bankruptcy can apply for PPP loans. These loans will be treated as administrative claims in the bankruptcy case, and anything not forgiven must be paid in full.
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