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.
When Congress first passed the PPP program in the Cares Act relief bill in response to the coronavirus pandemic, there was initially a lot of confusion about what was covered.
As of January 15th, 2021, there are many new options available to borrowers under the Paycheck Protection Program (or PPP2 as it is now being referred to). Under this new plan for PPP funding, which is still run by the United States Small Business Administration (SBA) in conjunction with the Treasury, several significant changes have been made to what PPP loan funds cover expenses.
In this article, we will briefly discuss the details of what is now covered and how your small business can take advantage of the changes.
New Covered Period
Before diving into what is actually covered under the new PPP2 rules, it is important to note that there have been some changes made to the coverage period itself. The coverage period is the period of time during which your business’ expenses will be eligible for forgiveness under the PPP2 program. Any funds spent outside of this coverage period are ineligible for eventual forgiveness.
Under the new program as modified by Congress, PPP borrowers are allowed to elect between an eight-week coverage period and a twenty-four-week coverage period, thus giving them a choice of how long they want their eligibility to last. This is a change from the previous program, in which borrowers were not given a choice.
The coverage period starts on the date of the loan’s origination. A loan’s origination date is the date that the loan is actually funded. It is not the date when your loan is approved by the lender.
New Coverage Categories
With the enactment of the modified round of PPP loans, a number of new categories that were not covered under the original PPP program but which will now be considered “eligible expenses” for forgiveness have been introduced. These include the following:
Personal Protective Equipment and Other Worker Protection Expenditures:
Costs associated with purchasing PPE for workers and other protective equipment that are required in order to abide by local, state, and federal COVID-19 guidelines are now included as forgiveness eligible expenses. Examples include sneeze guards, expansion of outdoor service areas, new or improved ventilation systems, and other expenditures made in accordance with keeping employees and customers safe.
Property Damage Costs:
In response to the public disturbances and unrest that took place during 2020, Congress has also decided to cover property damage costs in the list of new eligible expenses. This is designed to help businesses who had to pay out-of-pocket expenses for repairing and fixing their physical locations that were not covered by insurance.
Business Operations Expenses:
The new round also covers payments made by businesses for operational expenses like cloud computing, accounting and other business software, and other HR related computing.
Eligible supplier costs are costs paid to suppliers that were necessary for your business to remain in operation. These expenses must be made in accordance with a contract, order, or purchase order that was in effect prior to the coverage period. If supplier expenses are for perishable goods, which is often the case if you are a restaurant or food service, the contract or order can be from any time during the coverage period as well.
Original PPP Loan Covered Expenses
All of the expenses that were covered under the original PPP program still apply. These include payroll expenses, mortgage interest payments, rent payments, and utilities.
Are PPP Coverage Changes Retroactive?
The good news is that, yes, the changes to the eligible expenses are considered retroactive and now apply to the original PPP loans. If you have not yet applied for your original loan’s forgiveness, you can include the new covered expenses in your loan forgiveness application.
Maximizing PPP Loan Forgiveness Eligibility
Please remember, in order to be eligible for full forgiveness of your PPP loan amount, you must use at least 60% of the funds on payroll costs (including payroll tax). The amount of funds outside of payroll expenses that will be eligible to be forgiven is based on whether or not you spend 60% of the funds on payroll costs.
So, for example, if you receive a PPP loan for $100,000, but you only spend $54,000 on payroll, the amount you spent on payroll will then be considered as the full 60% of the loan that will be forgiven. As such, you will only be eligible for $90,000 in forgiveness (60% of $90,000 is $54,000).
If it is important for your business to receive full forgiveness of your loan, it is important that you observe these guidelines rigidly. In fact, if your loan is large enough, it may be beneficial to speak to a certified public accountant (CPA) who has been working with businesses on managing their PPP loans. They will be able to provide information and advice based on the specifics of your business and its expenses.
Are PPP Second Draw Loans Allowed?
One of the big questions floating around is: Can I apply for another one if I already received a PPP loan? The answer is yes.
Regardless of whether or not you have already received a loan during the first round of PPP loans, as long as you are still eligible to receive a PPP loan, you can indeed apply for another one. Even if you already have a forgiven PPP loan, you are still eligible.
Please note that your business must still be eligible, and changes to your business in the interim between receiving your first and second loan may impact this. For example, if you have managed to begin to expand or grow your business again and the number of employees your business has now exceeds 300, your business would no longer be eligible for a PPP loan.
However, if you are still eligible, all you have to do is submit a new loan application!
To be eligible to take out a PPP loan, your business must have 300 or fewer employees and experienced a 25% decline in gross revenue or gross receipts for any quarter of 2020 compared to the same period in 2019. You must also have used or plan to use all of your original PPP loan. These same qualifications apply to first-time PPP borrowers. As before, this applies to sole proprietors, self-employed independent contractors, and nonprofits as well.
The changes to the PPP covered expenses are definitely a huge help for small businesses across the nation. By taking proper care of how you allocate your funds, you can ensure that you are fully eligible to have all your expenses covered during the 8 to 24 week period you select as your coverage period.
Remember, if you are planning to take out a PPP2 loan, the deadline is March 31, 2021. So, if you are considering utilizing the program, now is the time to set aside other priorities and act. As always, Biz2Credit is here to help, and we will be continuing to post great content about the PPP2 program and other small business resources. So, be sure to continue to check back here at our blog for more information.