New round of PPP loans has big changes from 2020 version
Photo / Maureen Milliken
Businesses that were hard-hit by the coronavirus pandemic can apply for a new round of Payroll Protection Program loans. The program was approved in the new federal stimulus package with some differences from the original PPP.
More Information
The $908 billion stimulus package that went into effect last week has good news for small businesses still struggling more than nine months after pandemic shutdowns began — it includes $284 billion for a new round of Paycheck Protection Program loans.
The program, which reflects fixes to last March's hastily created CARES Act PPP program, allows businesses that benefited from the initial program to take a "second draw" and those that didn't get one the first time around to apply. It also has ramped-up benefits for restaurant and lodging owners, caps the size of business that can apply, adds businesses not eligbile before, enhances what it can be used for and has easier tax forgiveness, among other changes.
Some of the changes were made over the course of 2020 as the program was tweaked. Others come from feedback that was gathered during the 2020 process and is new to the new round. The application period is open until March 31.
According to the SBA, 28,270 PPP loans were made to Maine businesses for a total of $2.3 billion in the 2020 round, which ended in August. The average loan was $80,098, and the average amount of employees the business had was nine. Overall, more than 5.2million businesses across the U.S. were loaned $523 billion from the program last year.
In general, here's what small businesses looking for more help in 2021 can expect from the new program.
Restaurants, lodging get a break
The stimulus package provides $284 billion for the PPP program, and allows businesses to borrow up to $2 million. The loan amount is calculated by multiplying 2019 average monthly payroll by 2.5. Restaurants, certain food producers and lodging businesses that fall under the NAICS code 72 are the exception — their limit is 3.5 times 2019's average monthly payroll.
Qualifying requirements
One of the biggest changes is that a business must show it's had a revenue loss of 25% or more in 2020. The previous round was much more vague, requiring businesses to assert that economic uncertainty from the pandemic made the loan necessary. Businesses that apply will have to compare 2020 revenue for the first three quarters against the same quarters in 2019, with at least one quarter showing a 25% revenue loss.
On the positive side for smaller businesses, the cap on employees is 300, rather than the 500 in the previous round. There was a lot of criticism of the previous program being gobbled up by bigger businesses, leaving smaller ones in the lurch.
Businesses that are eligible that weren't before include some nonprofits that weren't before, like trade organizations, chambers of commerce, and destination marketing organizations (both private and governmental). Media organizations, like newspapers, television and radio stations that weren't eligible because of affiliations that put them above the employee cap are now eligible as well.
Financial businesses primarily engaged in lending are not eligible, as well as business where more than 15% of their revenue comes from political or lobbying activities, any business organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong or that has a person who is a resident of the People’s Republic of China on its board of directors; any person required to register as a foreign agent under the Foreign Agents Registration Act of 1938.
Staff, use changes
Businesses were required to use 75% of the 2020 loans for payroll. The new program drops that to 60%, with eligibility for partial forgiveness possible if that threshold isn't met.
As with the last round, for the loan to be forgiven, the business can't lay off employees once it has the funding, and payroll costs must be stay the same as they were at the time of application. Businesses that had to lay people off or make salary cuts because of the pandemic must restore the original wages, or hire the people back, within 24 weeks of getting the loan.
It's similar to the first PPP loan in that it can be used for eight weeks of rent, mortgage and payroll, and must be used within 24 weeks.
Some of the things loans in the new program can be used for that weren't eligible last time are:
- Money spent on workplace protection like PPP and plexiglass barriers, as well as indoor enhancements or outdoor expansion made necessary by local or state requirements;
- Group insurance;
- Business operations software or cloud computing service for product or service delivery, payroll processing expenses, human resources, sales and billing functions; accounting or tracking supplies, inventory, records and expenses;
- Payments to suppliers, or for goods, that are necessary for the business to operate and was facilitated before the loan was applied for; and
- Property damage related to looting because of public disturbances in 2020 not covered by insurance or other compensation
A business that got one last time around must have already used up, or earmarked, it's initial PPP money.
Forgiven loans won't be taxed
Borrowers won't have to pay taxes on forgiven PPP loans, including the ones from 2020. The new legislation tweaks the original IRS guidance that said borrowers couldn't expense wages and other qualifying costs if the money was already part of a forgiven PPP loan, which means the loans were taxed.
Congressional leaders said that went against what they'd intended with the loans, and made sure the language was changed in the recent package. Small businesses can deduct those expenses and the taxes on the loans will still be forgiven. Businesses that got Small Business Administration Economic Injury Disaster Loans and advance grants that went with them were originally required to deduct the EIDL grant from the forgiven amount of the loan. That's been changed so it's now fully forgivable.
Forgiveness streamlining
The foregiveness process has been streamlined for businesses that borrowed less than $150,000, increased from the previous $50,000 that was first offered in October. The 3508S foregiveness application is one page long. The borrower supplies information on how many employees were retained because of the PPP loan, the estimated amount spent on eligible payroll costs and attests that the information about meeting PPP requirements is accurate.
There is also an E-Z Loan Foregiveness Application for business owners who are self-employed or have no employees; businesses that didn't reduce payroll by more than 25% or reduce employee hours; businesses that had a financial loss as a result of state or local pandemic health requirements, but did not reduce employee wages by more than 25%.
Most Recent
Most Recent
0 Comments