More Than $900 Billion Relief Act Includes Funds for Second Round of Paycheck Protection Program Loans
On Sunday, December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021, into law. The relief act puts the nation’s businesses impacted during the COVID-19 pandemic one step closer to gaining an opportunity to secure stimulus funds that provide financial relief.
Update, 1/14/21: The Paycheck Protection Program began a phased reopening for loan applications on January 11; the program will be open to all participating lenders and eligible borrowers, including both first and second draw applicants, on January 19. First draw applicants can access the loan application here. There is a separate application form for eligible businesses seeking a second draw loan. Need to find an SBA-approved lender? We can help.
The more than $900 billion relief package includes $284.5 billion in additional funding for the Paycheck Protection Program (PPP) that can be used by eligible business for an initial loan and creates a second draw for smaller and harder-hit businesses. Additional funds also have been earmarked for loans and grants.
Applicants must apply by March 31, 2021, with the goal being for these funds to keep businesses open and enable them to retain their employees.
The provisions in the bill impact original PPP loans and other aspects related to the original stimulus that became law in March 2020. New PPP and other stimulus provisions such as tax credits are also affected. This article deals only with the new relief bill. We also have a blog post where Paychex Compliance breaks down key aspects of the relief act in a quick videos series.
How Would a Business Qualify for the New Second Draw PPP Loan?
Businesses hardest hit during the COVID-19 pandemic have been targeted for stimulus funds under the bill. In fact, businesses can’t qualify for a PPP loan unless they were in operation by Feb. 15, 2020.
A second draw PPP loan is available to eligible businesses who have previously received an original PPP loan and meet certain requirements, which include:
- Employing fewer than 300 people
- Having used or will use all funds from their first PPP loan
- Showing a reduction in gross receipts of 25 percent or more during any quarter in 2020 when compared to that same quarter in 2019.
How Much Can a Business Borrow Under the New PPP?
For first-time PPP borrowers, the maximum amount is $10 million. For second draw PPP, the maximum is $2 million. For both first and second draw PPP loans, the maximum amount one can borrow generally is 2.5 times the average monthly payroll cost based on defined 12-month periods. However, restaurants and businesses with NAICS codes (accommodations and food services) beginning with 72 would be eligible for second draw loans with a maximum of 3.5 times the average monthly payroll cost.
How Should Loan Forgiveness Be Handled?
The loan forgiveness process would be simplified for first-time borrowers and second draw PPP loans of up to $150,000. Businesses would only have to complete a certification to be established by the Small Business Administration (SBA), which includes:
- Describing the number of employees the employer retained
- Estimated amount of the loan spent on payroll costs
- The total loan value
For loans of more than $150,000, borrowers would need to submit to their lender the documentation currently required by the PPP.
How Would I Apply for a Second Draw PPP Loan?
For loans up to $150,000, businesses would submit a certification with their loan application attesting that the business meets the revenue loss requirements (25% or more reduction in gross receipts during any quarter in 2020 when compared to that same quarter in 2019). However, they will be required to provide proof that on or before the time of applying for forgiveness that the business met the revenue loss standard.
Are There Requirements for How PPP Funds Can Be Used?
PPP funds must be allocated for payroll and non-payroll costs — 60% and 40%, respectively. However, the relief act includes changes as to what can be considered covered non-payroll costs, significantly increasing what can be included.
- Operation expenditures such as payments for business software or cloud-computing services that facilitate business operations, product or service delivery, processing of payroll, human resources, tracking supplies and inventory, and more.
- Property damage costs related to vandalism or looting caused by public disturbances in 2020 that were not covered by insurance.
- Worker protection expenditures such as costs related to adaptations of business activities to comply with requirements or guidance from national (OSHA, CDC) agencies, as well as state and local governments from March 1, 2020 to the date the national emergency expires related to standards of sanitation, social distancing and other worker/customer safety requirements. They include:
- Purchase or maintenance of materials to create or expand a drive-through window, a ventilation or filtration system, indoor or outdoor business space, onsite or offsite health screening capability, and more
- Filtering facemask respirators approved for emergency use
- Personal protective equipment (PPE) as determined by the SBA
The relief act also clarifies the definition of payroll costs, now including employer-provided group insurance benefits such as group life, disability, vision and dental insurance.
What Changes Does the Relief Act Make for PPP Loans?
One of the more significant changes impacting PPP loan recipients is eligibility for the employee retention tax credit. Originally, if you took a PPP loan in the first round, you were not eligible for this tax credit against 50% of the wages paid to employees during the pandemic. This will no longer be the case and recipients of a PPP loan from the inception of the program who meet certain conditions could claim this credit on wages that were not forgiven payroll expenses. Among other changes are:
- An increase in credit amount to 70% on qualified wages paid in 2021
- A safe harbor allowing employers to use prior quarter receipts as a comparison
- An increase on the employee wage limit — $10,000 per quarter in 2021 as compared to $10,000 annually in 2020
The deadline to claim the employee retention tax credit, originally December 31, 2020, would be extended to June 30, 2021.
The relief act also reverses IRS guidance and will now allow a tax deduction on PPP forgivable expenses and make it effective as of the enactment of the CARES Act on March 27, 2020.
What Other Funding Options Would Be Available?
The new relief act dedicates $15 billion to the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, or talent representatives who demonstrate a 25% reduction on revenues.
In the initial 14-day period of implementation of the program, grants shall be awarded to eligible entities that have faced 90% or greater revenue loss. In the 14-day period following the initial period, grants only will be awarded to those eligible who have faced 70% or greater revenue loss.
After those two periods, grants shall be awarded to all eligible entities. Grants must be used for specific expenses such as payroll costs, rent, utilities and personal protective equipment.
The new relief act also dedicates funds in the form of loans and grants for very small business, community lenders and minority depository institutions.
Funding for grants and other loans included in the relief act are:
- $20 billion for new Economic Injury Disaster Loan (EIDL) grants for businesses in low-income communities if they meet certain criteria, including employing 300 or less and had more than a 30% economic loss
- $3.5 billion for continued SBA debt relief payments
- $2 billion for enhancements to SBA lending
Eligible businesses can apply for emergency EIDL grants through December 31, 2021, and the section of the CARES Act that requires PPP loan recipients to deduct the amount of their EIDL advance from their PPP loan forgiveness will be repealed if the bill becomes law.
Businesses should consult with counsel and other financial advisors to determine what course of funding best suits their needs.
What Has Been the Impact to FFCRA and Other Tax Credits?
Throughout the COVID-19 pandemic, businesses also had to deal with other issues that impacted operations and staffing such as a mandate on paid sick leave and expanded family and medical leave.
Businesses were able to take a payroll tax credit on 100% of wages paid for leave provided under the Families First Coronavirus Response Act (FFCRA) provisions — the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. These credits, set to expire December 31, 2020, are now extended through March 31, 2021.
The mandate to provide the leave, however, is no longer required, but if an employer decides to continue providing the leave under the FFCRA then they would be eligible for the tax credits.
Employers also had the option to allow employees to take a Social Security Tax Deferral from September 1, 2020 to December 31, 2020, provided in a Presidential Memorandum, with an obligation to ratably withhold and pay the deferred amounts from wages and compensation paid between January 1, 2021 and April 30, 2021. With the new relief act signed into law, this provision extends the repayment period through December 31, 2021 — with interest and penalties on unpaid deferred liability not beginning to accrue until January 1, 2022.
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