$900 Billion COVID-19 Package Offers More Relief for Businesses
The long-awaited second federal pandemic stimulus bill, the Consolidated Appropriations Act 2021, was signed into law by President Trump on December 27, 2020. The $900 billion COVID-19 relief package included in the legislation contains assistance for households and businesses, as well as funding for vaccine distribution and more.
Key takeaways of the new legislation for business owners are as follows:
Small Business Loans
The new legislation includes appropriations of approximately $284 billion for additional Paycheck Protection Program loans and $20 billion for Economic Injury Disaster Loans. These loans will be made available until March 31, 2021.
The eligibility requirements are similar to what was included within the CARES Act, providing additional eligibility to categories not previously included. These categories include local chambers of commerce, housing cooperatives, and certain news organizations. Also included in the new legislation is language confirming that churches and religious organizations are eligible borrowers.
Loan Covered Period
The new legislation provides that PPP borrowers will be provided the option to choose between an 8-week covered period and a 24-week covered period. It is not clear whether this flexibility to choose a customized covered period will apply retroactively to loans made prior to the enactment of the new legislation. Under the CARES Act, some borrowers were required to use the 24-week period.
Eligibility for Paycheck Protection Program Second Draw Loans
Borrowers that previously received a PPP loan, and have fully spent or plan to spend the funds, are eligible to apply for a PPP Second Draw loan. These draws are subject to new eligibility requirements including the following:
- Eligible borrowers are capped at no more than 300 employees (rather than 500); however, borrowers that have more than 300 employees but whose primary industry is in NAICS category 72 (accommodations and food service) and that have no more than 300 employees per physical location will also be eligible. The SBA’s “affiliation” rules.
- Eligible borrowers must have had gross receipts during the first, second, or third quarter of 2020 (or for loans after January 1, 2021, the fourth quarter of 2020) that demonstrate not less than a 25% reduction compared to the same quarter in 2019 (or, if the borrower was not in business in 2019, a 25% reduction in the second, third, or fourth quarter of 2020, compared to the first quarter of 2020). The SBA may require documentation substantiating the revenue loss as part of the loan forgiveness process.
PPP Second Draw Loan Calculation
The CARES Act calculation of the loan amount was based on 2.5x the borrower’s average monthly payroll in either the rolling 12-month period prior to applying for the loan or the 2019 calendar year.
The Second Draw loan amount is capped at the lower of either (1) 2.5x the borrower’s average monthly payroll costs for the 1-year period before the loan is made (this need not be calendar year 2019) or calendar year 2019, or (2) $2 million.
For businesses categorized under NAICS Sector 72, most notably accommodation and food service businesses, the payroll multiplier is increased from 2.5x to 3.5x. Additional adjustments to the formula apply for seasonal employers and businesses that did not exist for a full year prior to February 1, 2020.
Eligible Uses of PPP loan proceeds
The new legislation expands the scope of expenses that PPP loans may be used for and for which forgiveness may be granted to include the following types of expenses:
- Covered operations expenditures: defined as business software or cloud computing expenses for business operations, product or service delivery, payroll processing, payment, or tracking, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.
- Covered property damage costs: defined as costs relating to damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
- Covered supplier costs: defined as supplier payments that are essential to the borrower’s operations and were made either (1) pursuant to a contract, order, or purchase order in effect prior to the covered period, or (2) with respect to perishable goods, pursuant to a contract, order, or purchase order before or during the covered period.
- Covered worker protection expenditures: defined as operating costs or capital expenditures incurred by a borrower, during the period beginning on March 1, 2020 and ending upon the expiration of the presidential national emergency declaration with respect to COVID-19, to facilitate adoption of business activities to comply with applicable laws and guidance relating to COVID-19. For example, this could include expenditures on drive-through improvements, ventilation or filtration systems, physical barriers, expansion of business space, establishment of health screening capabilities, or other assets as determined by the SBA in consultation with HHS and the Secretary of Labor, as well as personal protective equipment (PPE).
- To the extent there was doubt about whether employer-provided group life, disability, vision, or dental insurance could be included as “payroll costs,” the new legislation clarifies that these expenses are included and thus are eligible uses and qualify for loan forgiveness.
Deductibility of PPP Loan Expenditures
Within the new legislation (Section 276, “Clarification of Tax Treatment of Forgiveness of Covered Loans”), borrowers are allowed to deduct payroll and non-payroll expenses paid for with PPP loans for income tax purposes. Read more about this issue here.
Simplified Forgiveness Application for Loans of $150,000 or Less
The legislation also provides for a streamlined loan forgiveness process for loans of $150,000 or less.
The legislation provides for automatic forgiveness if the borrower:
(i) signs and submits to the SBA lender a certification, to be established by the SBA not later than 24 days after the enactment of the new legislation, which
(1) shall not be more than 1 page in length;
(2) shall only require the borrower to provide
(a) a description of the number of employees the eligible recipient was able to retain because of the covered loan,
(b) the estimated amount of the covered loan amount spent by the eligible recipient on payroll costs, and
(c) the total loan value;
(ii) provides certifications as to complying with PPP loan requirements; and
(iii) retains records that prove compliance for four years, as to employment records, or three years, as to all other records.
You can find a detailed summary of the complete legislation here.