In the waning days of 2020, Congress and the White House were finally able to agree and pass an additional COVID-19 relief measure. The Consolidated Appropriations Act, 2021, provides comprehensive relief to Denver individuals, businesses, and families through stimulus payments, extended unemployment, various tax incentives, and changes to the Paycheck Protection Program (PPP). The updates include the introduction of a second draw loan (PPP2), expanded covered forgiveness expenses, and a new simplified forgiveness application for certain borrowers. To help clients, prospects, and others, Hanson & Co has provided a summary of the key points below.
PPP2 – Second Draw Loans
The Coronavirus Response and Relief Supplemental Appropriations Act, 2021 introduced PPP2 which provides loans to first-time borrowers and permits certain businesses to take a second PPP loan. Previous borrowers can apply for a second loan if they have 300 or fewer employees, have or plan to completely use the first loan, and can demonstrate a 25% gross revenue decline in any 2020 quarter over the comparable quarter in 2019. PPP2 expands the qualifying businesses which can apply for a first-time PPP loan including those with less than 500 employees, nonprofits including churches, sole proprietors, independent contractors, and certain self-employed individuals.
Covered Forgiveness Expenses
The types of PPP expenses eligible for forgiveness include payroll, rent, mortgage interest and utilities. Allowed expenses are expanded for all PPP loan forgiveness, so long as the PPP loan has not been forgiven before December 27, 2020.
- Covered Operations Expenses – This includes the cost for any software, cloud computing, human resources, or accounting software for the company.
- Covered Property Damage Costs – These include costs related to property damage due to vandalism or looting from public disturbances that occurred during 2020 and not covered by insurance.
- Covered Supplier Costs – Any expense that is essential to operations at the time incurred including those made pursuant to a contract or purchase order.
- Covered Worker Protections – This includes expenses incurred for personal protective equipment or to adapt business activities to comply with federal, state, or local government orders issued between March 1, 2020, and the date the COVID-19 national emergency expires.
It is important to note that in order to be eligible for forgiveness borrowers still must spend 60% of loan proceeds on payroll expenses during the 8- or 24-week Covered Period.
Loan Amount Determination
The loan maximum has been reduced from $10M to $2M per applicant or affiliated group of applicants. In general, borrowers can receive up to 2.5 times average monthly payroll costs in the year prior to the loan application. Hotels and restaurants are eligible to receive up to 3.5 times monthly payroll with the same loan maximum.
Other PPP Changes
- Simplified Forgiveness – The Act creates a simplified forgiveness application for loans less than $150,000. A one-page certification requires the borrower to provide a description of the number of employees the business was able to retain because of the loan, the estimated amount spent on the payroll costs, and the total amount of the loan.
- EIDL Advances – Borrowers are no longer required to deduct any Economic Injury Disaster Loan (EIDL) advances from the PPP forgiven amount.
- PPP Expense Deduction – The Act also overrides recent IRS guidance, allowing business expenses paid with PPP & EIDL advance funds to be fully deductible.
- Eligible Small Borrowers – There are funds set aside for borrowers with 10 or fewer employees.
- Employee Retention Credits – Borrowers may now receive a PPP2 loan and qualify for expanded payroll credits in certain circumstances.
The changes to the Paycheck Protection Program provide an additional dimension of support and relief to Denver businesses. More information will become available when the Small Business Administration (SBA) publishes rules and guidance which is expected soon. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Hanson & Co. can help. For additional information call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.