As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
A new round of relief is now available to small business owners looking for relief. The Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act, (Economic Aid Act or EAA) offers businesses to ability to take new first or second PPP loans. Those options are open to borrowers as of January 15th, 2021.
With the enactment of the revamped and modified Paycheck Protection Program, or PPP2 as it is being referred to as, the United States Small Business Administration (SBA) has released a new set of rules that guide the new PPP loans. Passed in the Consolidated Appropriations Act, this program, an extension of the original Paycheck Protection Program (PPP) passed in the CARES Act by Congress and signed by the Trump Administration as a response to the coronavirus pandemic, is once again designed to assist small businesses in meeting their cash flow needs and paying their employees.
Like the original PPP program, the U.S. Treasury and the SBA operate the PPP2 and are responsible for detailing the rules. In particular, these rules contain a new covered period, which is important for understanding the loan at large. In this article, we will discuss a little bit about the PPP2 overall and dive into what exactly the covered period is so that your business can be prepared.
Who is Eligible for PPP2?
Obviously, for the covered period to matter, businesses must first be eligible to receive a PPP2 loan in the first place. Under the new rules, Paycheck Protection Program loan eligibility has been extended to businesses (including eligible self-employed individuals, nonprofits, sole proprietors, independent contractors, destination marketing organizations, and small agricultural cooperatives) that meet the following criteria:
- The businesses were in operation on February 15, 2020.
- The business employs a total of fewer than 300 individuals.
- The business experienced a reduction in gross receipts during either the first, second, third, or fourth quarter of 2020 in excess of 25% when compared to gross receipts of the same quarter in the previous year, 2019.
The PPP2 funds are now limited to first-time borrowers and are also available as second draw loans, meaning previous borrowers can once again apply for PPP loans if they meet the prior criteria.
Buyers must also make a good faith certification in the loan application they submit to lenders that the current economic conditions and the state of the business’ finance make the loan necessary in order for the business to continue its operations and pay its employees. This is not something businesses should take lightly.
What Loan Amount is Your Business Eligible For?
A few different criteria make borrowers eligible to receive PPP2 funds of a certain amount that are essentially identical to the original PPP loan allocations methodology.
Essentially, businesses are eligible to receive the lesser of two amounts: either 2.5 times your business’s average monthly payroll costs for the calendar year of 2019 or $2,000,000. Neither of these criteria considers the number of employees you have and is based solely on payroll costs.
Given that small businesses are the businesses that are supposed to be taking advantage of the program, and small businesses typically have fewer employees, most businesses should not expect to receive the maximum amount of $2,000,000.
PPP2 Loan Forgiveness
Just like the first round of PPP loans, the staple benefit of the PPP2 loan program is the loan forgiveness option. Businesses are already under heavy financial duress on account of the COVID-19 pandemic, so, naturally, the goal is to make it as easy on them as possible. Fortunately, the PPP2 loan forgiveness covers expenses other than payroll, including many business operation expenses.
The original PPP loan forgiveness process itself has seen a number of modifications over the duration of the original program’s life, particularly the forgiveness application length.
During this second rounds, borrowers are eligible to receive forgiveness for the following eligible expenses:
- Payroll costs – this includes payroll taxes and employee benefits
- Mortgage interest
- Transportation costs
- Business software services (newly covered under PPP2 loans)
- Cloud computing services (newly covered under PPP2 loans)
- Property damage costs from vandalism, looting, and other public disturbances that occurred during 2020
- Supplier costs
- Personal protective equipment (PPE) and other worker protection expenditures
Adhering to these is important if you are seeking to receive forgiveness for the full amount of your PPP loan.
What is the Covered Period
Now that we have run through the basics of the PPP2 program, one of the biggest questions we have gotten is: what exactly is the covered period? This is an important question because it impacts how much of your loan will be eligible for forgiveness, and it was a point of contention during the original release of the PPP program.
The way the coverage period words is it is the amount of time during which funds spent by PPP borrowers are eligible for PPP loan forgiveness.
Funds spent outside of this covered period are not eligible for PPP loan forgiveness.
One of the issues with the original PPP loan program was that the coverage period was first an 8-week period, and then it was changed to a 24-week period. Under this, businesses were not given any discretion as to how long of a covered period they received, and it was based solely on when they applied for the loan.
In order to address this valid business concern, the new covered period allows for PPP borrowers to elect a coverage period between 8-weeks and 24-weeks.
The covered loan period itself starts on the date of the loan’s origination.
Should You Hurry to Get a PPP2 Loan?
One of the most disappointing parts of the first round of PPP funding was that it ran out early on. Congress remedied this issue, but it still left many businesses in a state of panic and concern early on.
During this second round of PPP, businesses that would like to receive funds should be proactive about filling out and submitting an application. At this time, the $284 billion in allocated funds for the program is roughly half that of the first round. However, there is approximately $130 billion in unallocated funds that should bring the pool to a little over $400 billion.
That said, if you are interested in receiving a PPP loan, sooner is better than later for applying.
Additionally, if you are planning on taking out a PPP loan, consider talking to a CPA about the process for filing for forgiveness and how you can maintain an expense log that will make you eligible for full forgiveness.
There is no doubt that the COVID-19 pandemic has placed an incredible amount of pressure on small businesses across the United States. Whether your business works in the construction industry, the food services industry, the hospitality industry, or something else, almost all businesses have experienced some sort of strain.
Loans can be confusing, that is a fact, and Biz2Credit is here to help you through it. As always, be sure to keep checking back on our blog for more great content and information on the latest development, both related to PPP2 loans and otherwise.