PPP LOANS – ROUND 2 — Please note the Eligibility for a loss in revenue is 25 percent for any quarter of 2020.
PPP LOANS – ROUND 2
Please note the Eligibility for a loss in revenue is 25 percent for any quarter of 2020.
On December 27, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“PPP2 Act”) came into law, changing rules for Paycheck Protection Program (“PPP”) loans, including making a supplemental PPP loan available to many PPP borrowers and increasing the types of business expenses that can be forgiven.
Among many other changes discussed in detail below, the PPP2 Act provides the following key changes to the PPP program:
– Funding to allow the hardest-hit small businesses to receive a second forgivable PPP loan (Second Draw Loan). Eligibility is limited to small businesses with 300 or fewer employees that have sustained a 25 percent revenue loss in any quarter of 2020.
– Forgivable expenses are expanded to include supplier costs and investments in facility modifications and personal protective equipment to operate safely.
– Business expenses paid for with the proceeds of PPP loans are tax deductible, consistent with Congressional intent in the CARES Act.
– EIDL grants no longer reduce the allowed forgiveness amount of PPP loans.
– Borrowers may apply to obtain loan amounts they had previously returned or had not taken.
– Loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less.
Second PPP Loans
PPP borrowers may apply for one Second Loan. Many of the requirements are the same as the original PPP loan. The maximum total loan amount is the lesser of $2 million or at the election of the borrower, either (1) the average total monthly payment for payroll costs incurred or paid during the 1-year period before the date on which the loan is made; or (2) calendar year 2019; multiplied by 2.5.
The borrower may have only 300 total employees, as opposed to 500 employees under the rules for an original PPP loan. And the total amount of loans a borrower (including affiliates) may receive as an original PPP loan and as a Second Loan in any 90 day period is $10 million.
Second Loans are available to any business concern, nonprofit organization, veterans organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative that:
– Has used or will use on or before the expected date of the disbursement of the Second Draw Loan the full amount of the original loan;
– Meets the annual receipts requirements for PPP borrowers generally;
– Has 300 or fewer employees;
– Has at least a 25% reduction in gross receipts in a quarter in 2020 as compared to the same quarter in 2019.
As with the original PPP loan, a borrower seeking a Second Loan must certify that economic uncertainty makes the loan request necessary to support ongoing operations. Given that the applicant will now have been operating for several months during the COVID pandemic, care should be taken by the applicant to be certain it can establish that economic necessity.
And, because the IRS said it would tax the forgiveness amounts as income, the PPP2 Act takes care of that, saying that expenses for any amount of a PPP loan forgiven is tax deductible, even if excluded from gross income. This applies to any present or future PPP loan, even if forgiveness has already been granted.
To be eligible for a PPP loan, an entity must have been in operation on February 15, 2020. For loans where forgiveness is given after the date of the PPP2 Act, the borrower is not limited to a choice of 8 weeks or 24 weeks for the covered period for which it seeks forgiveness. Instead, the borrower may choose any length of time between 8 weeks and 24 weeks after the origination of the loan.
For loans made on or after the date of the PPP2 Act, the time period for determining that no reduction in forgivable payroll costs is required based on the inability to rehire an employee or hire a comparable new employee, or to return to previous level of business activity due to COVID-related government requirements, is moved from December 31, 2020 to “the last date of the borrower’s selected covered period.”
For borrowers of PPP loans that as of the date of the PPP2 Act have not received forgiveness and the borrower returned amounts disbursed under its original PPP loan, the borrower may now apply for a new loan equal to the difference between the amount retained and the maximum amount applicable. And where the borrower did not accept the full amount of the PPP loan approved, the borrower may apply for a modification of the loan amount to the maximum amount applicable.
For all PPP loans, the SBA shall not have a personal guaranty or recourse against any individual shareholder, member, or partner of a borrower for non-payment of a PPP loan.
At least 60% of the forgiveness amount must be payroll costs. The forgiveness amount may include the expense categories previously allowed for PPP loans:
– Payroll costs;
– Payment of interest on a mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
– Rent; and
– Utility payments.
Plus these new categories of potentially forgivable expenses:
– Operations expenditures, including certain software and computing costs, processing of payrolls and some office support functions;
– Supplier costs based on contractual obligations in effect at the date of the loan, and which are essential for business operations;
– Personal protection expenditures related to compliance with worker safety and health mandates related to COVID; and
– Group life, disability, vision, and dental insurance are expressly listed as payroll costs.
For existing and future loans where forgiveness has not already been granted before the enactment of the PPP2 Act, the additional expense categories are now allowed to be forgiven. And, the “covered period” for determination of full time employee equivalent, payroll, is extended from December 31, 2020 to March 31, 2021.
Last, where any Economic Injury Disaster Loan (“EIDL”) amount was deducted from the amount of PPP forgiveness, that is now repealed, including those borrowers who already obtained forgiveness without the amount of the EIDL.
Simplified Loan Forgiveness for Loans of $150,000 or Less
Borrowers applying for a loan of $150,000 or less may use a simple, one page form, which will require the borrower to provide:
– The number of employees whose jobs were preserved due to the PPP loan;
– The amount of loan proceeds spent on payroll costs; and
– The total amount of the loan;
– A confirmation that the borrower’s certification was accurate, that it has complied with PPP requirements, and that it is maintaining required records. However, the borrower may be required to submit documentation to support its claimed payroll cost forgiveness.
Step one for forgiveness is to submit the application to the lender and once the lender reviews/approves, the lender submits the forgiveness application to SBA for forgiveness and payment to the lender. While the SBA may choose to audit the loan, only if it determines that there is fraud, ineligibility or other material noncompliance with program requirements, it may modify the amount of the loan or the amount of forgiveness. So, keep your records!
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EPPS & COULSON, LLP
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Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. While intended as informational and educational, it is considered advertising under laws in some states. Epps & Coulson, LLP encourages you to call us to discuss these matters as they apply to you or your business.