The Paycheck Protection Program is back! Now, before you rush to your bank and sign up for another round of fun(ding), here are the important elements to keep in mind. There are several key changes to this second round of funding, mostly made with the intent of ensuring smaller businesses are able to access funding quickly. But first, let’s go back to the beginning.
Congress has decided to reopen the first Paycheck Protection Program as it originally operated by infusing it with $35 billion dollars. This means that if you never applied for or received PPP funding before the application process closed on August 8
th, you will actually be able to apply under the original rules. All of this information is readily available on the Treasury’s site,
here.
If you’ve already received and expended your first PPP loan, or you expect to be able to use your entire loan shortly, you should be eligible to apply for a second loan under the new guidance. Here are some of the high-level points to keep in mind.
- Most borrowers will continue to use 2.5 times their average monthly payroll to determine their loan amount. For those in the hospitality industry, these businesses will be allowed to borrow 3.5 times their average monthly payroll.
- The maximum loan for any borrower will be $2 million. This is down from the $10 million cap for those applying under the Round 1 guidelines.
- Businesses with fewer than 300 employees are eligible to apply for Round 2. This is a tightening of the 500-employee parameter previously in place.
- Businesses must show a 25% gross receipts drop during any quarter in 2020 relative to that same quarter in 2019.
- The covered period for spending Round 2 loan proceeds can be any period between eight and 24 weeks, at the borrower’s discretion. This flexibility differs from the either eight weeks or 24 weeks required in Round 1.
- Four new buckets of eligible expenses have been added –
- Covered operations expenditures, such as software or cloud computing, payroll expense processing or payment fees, accounting, inventory, or billing expenditures, etc.,
- Covered property damage costs, such as those incurred to make repairs after the various public disturbances and bouts of vandalism throughout 2020,
- Covered supplier costs, such as expenses to purchase any necessary goods essential to the operation of the business, and
- Covered worker protections, such as operating or capital expenditures necessary to comply with federal or state safety requirements in association with CDC, OSHA, or HHS guidance.
- Note that 60% of loan proceeds must still be spent on payroll costs in order for the loan to be fully forgiven.
Keep in mind that the CAA requires the SBA to be ready to welcome in a new round of PPP applicants within 10 days of the law’s passing. This is a rapid turnaround. That means that more information on the actual application should be available in early January.
Now for some bad news. Congress has stipulated that if you received a PPP loan but you were unable to spend it all, then you will not be eligible for this second round of funding. Although they made it clear that as-yet unspent funds could be expended to make a business eligible for Round 2, they have not yet given guidance on how they will adjudicate who was incapable of spending the entire loan and who simply has not used it all just yet. This may be entirely on the honor system, but more guidance is needed before we can say for sure.
Let’s leave you with some good news. The CAA states that PPP loan recipients of $150,000 or less can fill out a one-page application for forgiveness, providing good faith attestations and minimal supplemental information. The forgiveness process should be incredibly simple for those who received $150,000 or less, and audits will only be undertaken to pursue those who have made fraudulent application for PPP loan funding. This will apply to both the first and the second rounds of PPP funding. The SBA is currently working around the clock to develop this new application. Stay tuned for more information on this front!
This information is current as of December 29, 2020. As always, we continue to monitor changes for clarifications, revisions, etc. and we will send out updates as soon as possible.
