PPP Round 2: What you need to know

The Paycheck Protection Program (PPP) is opening once again thanks to Congress’ Consolidated Appropriations Act 2021 passed at the end of December 2020. Now, the PPP program established by the CARES Act is targeted to help small businesses more than ever. As we have learned in 2020, nothing is as it seems as first. We will continue to monitor SBA and IRS for implementation details. Consult your tax advisor for guidance specific to your business.

Overview

As before, Congress has directed the Small Business Administration (SBA) to work with banks to administer the PPP loan and forgiveness process. Participants will complete all paperwork through banking institution lenders. Some highlights of the updated program:

• $284 billion is allocated (including over $100 billion left over and un-used from round 1).
• Eligible businesses must have 300 or less (down from 500 in round 1) employees per location.
• Restaurants and food service businesses will be able to borrow more than others.
• Forgivable expenses still require a 60 (payroll) / 40 (non-payroll) split but also now include group health insurance benefits.
• Interest rates on un-forgiven amounts are non-compounding and non-adjustable.
• Forgiven loans are NOT taxable and forgiven expenses ARE deductible.

Eligibility

As noted earlier, Congress has updated eligibility for PPP2 to target small business. To that end, several key provisions were updated or added. Those include:

• You must have used (or will use) all of PPP Round 1
• Eligible businesses must have 300 or less (down from 500 in round 1) employees per location
• You are able to show a revenue reduction of at least 25% in the first, second, or third quarter of 2020 when compared to the same quarter in 2019.

Businesses types that may apply include:

• Sole proprietors
• Independent contractors
• Self-employed individuals
• Certain non-profits (the new bill has expanded eligible businesses to include certain 501(c)(6) non-profit organizations)
• Seasonal employers; businesses that operate no more than seven months within a year or earn no more than a third of gross receipts within a six-month period
• Faith-based organizations that have less than 150 employees

Loan Amounts

First-draw PPP loan limitations

Businesses who have not yet received a PPP Loan can borrow is the lesser of:

• 2.5 times the average monthly payroll costs and healthcare costs
• $10 million
There may be exceptions to these limits for restaurants and other hospitality businesses.

Second-draw PPP loan limitations

Businesses applying for a second round can borrow the lesser of:

• 2.5 times the average monthly payroll costs and healthcare costs in the year prior to when the loan was received or within the calendar year
• Restaurants, hotels, and other hospitality businesses are eligible for 3.5 times the average monthly payroll costs and healthcare costs in the year prior to when the loan was received or within the calendar.
• $2 million

Forgivable Expenses

At least 60% of loan proceeds must be spent on:

• Employee Payroll: Salary, wages, tips, and commissions up to $15,386 within a 8-week period or $46,154 within a 24-week period
• Group health insurance payments
• Dental and vision plans
• Disability benefits
• Life Insurance
• Owner compensation costs

40% of the funds may be spent on:

• Paid time off
• Retirement plans
• Federal payroll tax
• State unemployment insurance
• Utilities
• Rent
• Mortgage Interest
• Personal Protective Equipment (PPE)
• Covid-19 related compliance measures
• Property damage related to 2020 rioting & unrest
• Software to facilitate business operations
Notice: This generic information is not intended to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary (by industry, entity type, and locale), consult your accountant, lawyer, and/or HR expert for specific guidance.