A Second Round of PPP Loans is Coming (With Some Improvements)
Congress recently passed a $ 900 billion COVID-19 relief bill that pumps billions of dollars back into the popular Paycheck Protection Program (PPP), which ended in early August. Under the PPP, small businesses can borrow money from private lenders with no collateral, personal guarantees, or fees. The loans do not have to be paid back to the extent that they are used to cover specific expenses, and they provide a vital lifeline for businesses struggling financially during the coronavirus pandemic.
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The bill obliges the Small Business Administration (SBA) to draft regulations to implement the PPP no later than 10 days after the bill is signed. Once the SBA has enacted the regulations, the program will officially reopen and run until March 31, 2021.
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The legislation also ensures that business expenses paid with PPP loans issued are tax deductible. It is also clarified that PPP loans are not included in taxable income.
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Who can apply?
Many small businesses, nonprofits, and independent contractors may be eligible for the new round of PPP loans. Borrowers can also qualify for a loan if they received funding in the first round of PPP. $ 284.5 billion of forgivable PPP loan funds are available for certain borrowers who have already received PPP loans and other businesses that have failed the preliminary round.
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The bill extended loans to "harder hit" small businesses, certain nonprofits, housing associations, sole proprietorships, independent contractors and others with 300 or fewer employees. Qualified borrowers must report a loss of at least 25% of gross income in each quarter of 2020 compared to the same quarter of 2019.
First-time PPP borrowers are subject to the program's original eligibility rules.
New amount for "Second Draw" loans
The maximum loan amount is $ 2 million for "second draw" loans. This is less than the maximum of $ 10 million applied under the original CARES Act rules.
A borrower can qualify for a loan that ranges up to 2½ times their average monthly wage bill. Accommodation and catering businesses such as restaurants and hotels may earn three and a half times their average monthly wage bill.
Lending for the new PPP loans
As with the previous round of PPP lending, the new loans can be fully lent if they are spent on the right purposes (mainly payroll) during the correct time period. There are currently three applications for PPP loans, but they are likely to be updated by the SBA once the program officially reopens.
To receive full forgiveness, borrowers must spend at least 60% of the loan proceeds on payroll.
Borrowers can spend up to 40% on other qualified expenses during the covered period. In addition to rent, mortgage interest and ancillary costs, the list of eligible non-billable expenses has been expanded to include four new categories:
Business expenses covered;
Property damage costs covered;
Supplier costs covered; and
Expenditure covered for worker protection.
Business expenses covered include payments for software, cloud computing, and other human resources or accounting needs.
The property damage costs covered consist of expenses for property damage caused by public disruptions in 2020 and not covered by insurance.
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Supplier covered costs are expenses to a supplier under a contract, purchase order, or purchase order for goods that were valid before a loan was taken out and were essential to the borrower's business at the time of issuance.
Covered worker protection expenses include payments for personal protective equipment and fitting investments to help a borrower comply with federal health and safety guidelines or equivalent state and local guidelines regarding COVID-19 from March 1, 2020 through to end of the national to comply with emergency declaration.
For any loan up to $ 150,000, the covered loan amount will be awarded when the borrower submits a one-page online or paper form detailing the loan amount, the number of employees withheld, and the amount of loan spent on payroll. Congress has directed the SBA to publish this form within seven days of the new law going into effect.
Choice of the period covered
The bill also allows borrowers to select the end date of their covered period during which they must spend sufficient amount on qualified expenses in order to receive forgiveness. However, it must be longer than eight weeks from the date of payment and no longer than 24 weeks.
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