On December 27, the President signed the latest COVID-19 relief bills which extend programs that were about to expire, provide stimulus checks to individuals, and create a new round of Paycheck Protection Program (PPP) loans to small businesses. In this article, we'll be taking a look through some of the differences in this round of PPP Loans.
Most of these have been put in place to fix some of the issues from the last PPP loans given out and to best help the business most affected by the pandemic.
Loan Eligibility and Calculations
Eligibility is the first big difference. The first loan was open to any business who determined they had a need, while the new round is limited to businesses that, during any quarter in 2020, had a 25% reduction in their gross income in comparison to the same quarter of 2019. This change helps ensure that the help goes to those that definitely need it, verses those who may have received a loan despite actually needing it. In the defense of those businesses, there was a lot of uncertainty back in March, and no one was quite sure how long businesses would have to remain closed. Fast forward to almost a year later, now we can clearly see which businesses have been affected the most.
The employee limit has also changed. Last time, an employer could have up to 500 full-time equivalent employees and still be eligible. With the second round, only employers with 300 employees or less are eligible to receive a loan.
The second change only affects certain businesses. While the maximum loan amount stayed the same (typically 2.5 months of payroll), the calculation is now based on either the 2019 payroll for the employer or the payroll for the last 12 months. Since the loans are now being given to those most affected, it appears that for most businesses, the 2019 amount will still provide the most benefit.
To additionally benefit to those industries that were hit the hardest, namely restaurants and hotels, the maximum loan calculation is now based on 3.5 months’ worth of payroll. Businesses will generally be eligible for these benefits if it begins with NAICS Code 72.
Loan Forgiveness Calculations
Anyone who received the first round of PPP is aware that the covered period for expenses and payroll was originally 8 weeks, but was then was later extended to 24 weeks. This new round of PPP stays consistent with the same eight to 24-week period with additional flexibility on choosing said period. This additional flexibility will help those employers who may have their forgiveness limited due to less employees or paying said employees less (those limitations are in the second round of PPP also) since they will be able to choose the period that will work best for them.
The new round of PPP can be used towards more expenses than the previous loan. The first round included payroll, retirement plan contributions, health insurance, certain payroll taxes, as well as non-payroll expenses such as rent, utilities, and mortgage interest. The new round includes interest on other debt obligations, worker protection expenses (PPE), other operational expenses, and property damages that may have resulted from the unrest in some communities. Although this expansion can be helpful, most employers are finding that their entire loan goes towards payroll, as the maximum amount only covers 24 weeks of payroll.
Special Set-Asides and Expanded Eligibility
The new round of PPP has a number of set-asides, once again for those businesses most affected by the pandemic. Of the $284 billion included in this program, $15 billion is for live venues, independent movie theaters, and cultural institutions.
The eligibility has also been expanded for 501(c)(6) not-for-profit organizations such as business leagues, chambers of commerce, real estate boards, and boards of trade. One caveat is that these organizations cannot have lobbying activities that comprise more than 15 percent of their income or activities.
Other changes to the PPP program (both rounds) include the following:
· Expenses used to justify the PPP loan forgiveness are now deductible. This is a change from the IRS information from earlier this year.
· Loans under $150,000 will need little documentation to be forgiven. This will result in a new loan forgiveness form that the IRS has not yet produced.
As was encountered in previous stimulus bills, there will be some changes and we will add clarifications as we receive. The professionals at PKC 3 LLC will continue to keep you updated with the latest information via our email newsletters, Facebook, and on our website.
If you would like assistance applying for this loan, or have questions concerning any of the above information, please feel free to give us a call, or email email@example.com .