As of December 27th, 2020 the Paycheck Protection Program is back, and Biz2Credit can get your business started with an easy process to help you get funded quickly.
The passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was a turning point for coronavirus relief. Many small business owners had exhausted their Paycheck Protection Program (PPP) loans and were in dire need of assistance. The new Act was signed into law by President Donald Trump on December 27 after passing Congress with bipartisan support on December 21. It is part of the $900 billion stimulus package within a $2.3 trillion spending bill for the 2021 fiscal year.
There are six main things to know about the bill focusing on Coronavirus Response and Relief:
- the basics of the coronavirus relief package,
- second draw PPP loans
- restaurant eligibility and payroll loans
- nonprofit 501(c)(6) eligibility
- simplified loan forgiveness
- new covered period dates
Since there is so much in the news about the coronavirus aid package, we wanted to break down the 645-page bill here. It is important to remember that a lot of this could change as the implementation of the package is up to the U.S. Small Business Administration (SBA), which may take 10 or more business days to provide guidance.
Although many things are similar to the Coronavirus Aid, Relief, and Economic Security (CARES) Act that passed in March, there are some new coronavirus aid and loan programs. The main things in the package are:
- another round of PPP loans,
- stimulus checks,
- unemployment assistance,
- targeted Economic Injury Disaster Loans (EIDL),
- and grants for live venue and theater operators.
As part of the coronavirus relief and response package, the Small Business Administration (SBA) will provide economic relief to many small businesses through second draw PPP loans and increased business eligibility.
Since we’ll be focusing on businesses and how they can prepare for small business loan applications from the federal government, it’s important to note that the Act also clarifies PPP eligibility by specifying they must be one of the following:
- certain non-profit organizations and 501(c)(6)s,
- small news organizations,
- housing cooperatives,
- veterans’ organizations,
- tribal businesses,
- self-employed individuals,
- sole proprietors,
- independent contractors,
- and small agricultural co-operatives.
The new legislation does not allow publicly traded companies to apply for PPP funding.
Second-Draw PPP Loans
The second draw program allows “smaller and harder-hit businesses” who have already used (or plan to use) the full amount of their first loan to apply for more additional PPP funds, up to $2 million.
This second draw program has significantly less money for paycheck protection program loans. The first-round program in early April had $349 billion available while the second round in late April had $320 billion. This program includes only $284 billion. Some of that money is to be distributed to a specific place:
- $30 billion is for specific lenders to distribute:
- $15 billion to community financial institutions.
- $15 billion to certain small depository institutions.
- $35 billion is for first-time borrowers.
- $15 billion to small, first-time borrowers with 10 or fewer employees “or loans less than $250,000 in low-income areas.”
- $25 billion for second draw PPP loans to “smaller borrowers with 10 or fewer employees, or loans less than $250,000 in low-income areas.”
To be eligible for a second draw PPP loan businesses must not employ more than 300 people and be able to demonstrate a reduction in gross sales by at least 25 percent from 2019 to 2020.
Restaurant Eligibility and Payroll Loans
As noted above, eligibility for these loans has changed to exclude publicly traded companies. This seems like a move to help small businesses that may have missed out on the $669 billion PPP loan program. Looking at data from the SBA on loans over $150,000, the accommodation and hospitality industry received an average of $32.5 billion. That funding was the majority of financial assistance for the industry and it went to 58,388 companies – over 90 percent are corporations. Most small restaurants are still struggling.
Although the new legislation is focused on venues this time, with $15 billion set-aside, it does have a note on PPP loans for small restaurants. Representative Nydia Velázquez (D-NY), chair of the Committee on Small Business, wrote that nearly 60 percent of restaurants expect furloughs and layoffs as the “pandemic has significantly reduced their bottom lines, threatening their viability and long-term survival.” So, the bill does two things for small restaurants:
- Borrowers from the accommodation and hospitality industry (restaurants and hotels, primarily) can get up to 3.5 times their average monthly payroll costs, which could increase their forgivable loan amount.
- This is an increase from the 2.5 times monthly payroll costs that guided the original PPP loans.
- All other businesses still have to abide by the original guidelines.
- Focuses on businesses with less than 300 employees for second draw SBA loans.
- The maximum amount for this loan $2 million, which is reduced from the original $10 million.
In addition, the bill expands what non-payroll expenses can be covered in payroll loans, including:
- PPE and adaptive investments to comply with health and safety guidelines,
- software for HR and accounting needs,
- supplier costs necessary for operation,
- and property damage caused by “public disturbances.”
Nonprofit 501(c)(6) Eligibility
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act expanded eligibility for nonprofit organizations who can receive a Paycheck Protection Program loan to now include 501(c)(6) organizations, if they meet certain qualifications:
- “The organization does not receive more than 15 percent of receipts from lobbying;”
- The lobbying activities “do not comprise more than 15 percent of activities;”
- “The cost of lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020; and”
- “The organization has 300 or fewer employees.”
- “Professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other political activities” are not eligible under this section.
Destination Marketing Organizations are also eligible for PPP loans if they follow the first four qualifications and:
- are registered as a 501(c) organization, a quasi-government entity, or a political subdivision of a state or local government.
A 501(c)(6) includes “business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit” and do not benefit a private shareholder or individual. These organizations are considered tax-exempt nonprofits.
Destination marketing organizations are nonprofit organizations focused on promoting locations as travel destinations. They are also known as tourist boards or tourism authorities and are generally tied to local government infrastructure. Many have been hit hard by the decrease in travel due to the pandemic.
Simplified Loan Forgiveness
Most of the same terms for PPP loans from the CARES Act are in effect here as well: loan proceeds must be used on approved payroll and non-payroll costs. PPP loan forgiveness is still based on the 60/40 cost allocation between payroll and non-payroll costs. Also, the PPP Flexibility Act in June 2020, changed forgiveness rules for the program by allowing employers with forgiven loans to defer payment of 2020 payroll taxes to the IRS with half due on December 31, 2021 and the other half in 2022.
With the newly passed Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, PPP borrowers can now use a simplified loan forgiveness application for loans under $150,000 that allows the borrower to receive forgiveness if they:
- certify the number of employees retained because of the covered loan.
- estimate the total loan amount spent on payroll costs.
- note the total amount of the loan.
New loan forgiveness forms will be posted to SBA.gov once guidances have been issued by the Administrator and Treasury in the new year.
New Covered Period Dates
The covered period has been changed in this Act. It allows the borrower to choose when their covered period ends. The loan recipient has the option of ending 8 weeks or 24 weeks after the loan’s origination.
The previous PPP loan program deadline of August 8, 2020 has also been extended to March 31, 2021.
Of course, the new covered period won’t begin until loans start to be disbursed. We are awaiting guidance from the SBA on when that might be, but there is time now to get together your payroll information and be ready to apply when PPP loan applications open.