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Second Round of PPP Loans Approved by Congress in New COVID-19 Stimulus Bill
Congress has approved a $900 billion package designated to aid American households and small businesses currently struggling with the pandemic’s economic effects on the night of December 21, 2020. Several days later, on the evening of December 27, 2020, President Donald Trump signed the Coronavirus stimulus bill into law, allowing help to come to the nation.
Table of Contents
- The New Coronavirus Stimulus Bill
- Several Provisions of the First Round of Paycheck Protection Program
- The Second Draw PPP Loans
- Second Draw PPP Loans: Budget Allocation and Funding Provisions
- Second Draw PPP Loans: Forgiveness Taxation
- Second Draw PPP Loans: Standards for Forgiveness Under the 60% Payroll Rule
- Second Draw PPP Loans: Qualifications
- Second Draw PPP Loans: Simplified Forgiveness Application
- Economic Injury Disaster Relief Program Advances
- PPP Loans in Bankruptcy
- Paycheck Protection Program
- The COVID19 Relief Package
The New Coronavirus Stimulus Bill
The COVID19 Relief package consists of a course of action that aims to provide assistance and safety measures to colleges, K-12 schools, universities, small businesses, and nursing homes. Furthermore, it offers an approach that addresses millions of American citizens’ needs, including those who are experiencing unemployment due to coronavirus. The new legislation extends several provisions from the previous stimulus package passed in March and April of 2020, but new and developed measures to help individuals and small businesses were also noted in the stimulus bill. One particularly improved provision of the new coronavirus stimulus bill is the second round of COVID19 Relief that provides Paycheck Protection Program (PPP) loans to affected and eligible small businesses.
Several Provisions of the First Round of Paycheck Protection Program
In the first round of PPP loans, Congress approved an initial installment of $349 billion funds in March of 2020, and an additional $300 billion in the second installment of PPP loan funds in April of 2020, making a total of over $649 billion PPP loan funds in the first round of the Paycheck Protection Program. Proceeds from the first round of PPP loans were explicitly stated only to be used by qualifying businesses on certain permissible expenses, such as interest on mortgages, payroll costs, rent, and utilities. It is imperative in the case of PPP loans that small businesses are to use a specific percentage of the loan proceeds on payroll expenses in order for the PPP loan to be qualified for complete forgiveness.
The Second Draw PPP Loans
The recently developed coronavirus stimulus bill includes provisions for the second round of the Paycheck Protection Program, which is now referred to as the “second draw loans.” Although the rules for the second draw loans are moderately similar to the original program, the new legislation paved the way for a number of changes and significant development in the Paycheck Protection Program rules, tilting the favor further to the loan borrowers. Provisions of the PPP allocates additional loan funds and includes drastic changes from the original program involving the loan-forgiveness taxation, application requirements for loans, and loan standards.
Second Draw PPP Loans: Budget Allocation and Funding Provisions
With the new legislation, the Paycheck Protection Program is able to receive around $284 billion funding for the second draw loans, wherein the loan limit per qualifying entity is set at $2 million for second-time borrowers, and a $10 million cap remains for first-time borrowers. Each qualifying small business will receive PPP funding based on the submitted 2019 average monthly payroll of the business applicant, multiplied to a factor of two-point-five (2.5). As such, funding for two and a half months of the small business’s payroll expenses will be provided for by the second draw loans. In addition, the new coronavirus stimulus bill now covers a special calculation for businesses in the food industry and hospital industry, wherein a factor of three-point-five (3.5) is set to give restaurants and other food businesses a larger loan amount. In that case, for an average monthly payroll in 2019 amounting to $100,000, a small business that is not involved in the food industry will qualify for a $250,000 second draw loan, whereas a food business or hospital business will be eligible for a $350,000 second draw loan.
Second Draw PPP Loans: Forgiveness Taxation
Loan proceeds from both the first round of the original CARES Act and second draw loans of the Paycheck Protection Program are regarded under the new legislation as non-taxable income of the small-business borrower. Through this new provision, small businesses can have tax-deductible expenses for the payments that were covered by the PPP loan. This particular change in the legislation was made to reverse the previous guidance issued by the Treasury and the IRS, which initially did not allow borrowers to deduct expenses covered by the PPP proceeds. Moreover, the old provisions state that the income tax basis increase caused by the borrower’s PPP loan shall remain, even if the PPP loan is forgiven. With this new legislation, Congress is able to change the old provisions in order to preserve its ultimate objective to aid millions of Americans and small businesses who have been struggling economically due to the pandemic. Thus, all the loan proceeds provided through the Paycheck Protection Program shall be considered a non-taxable income.
Second Draw PPP Loans: Standards for Forgiveness Under the 60% Payroll Rule
In the case of the second draw loans, a small business must spend at least 60% of the PPP loan proceeds on payroll costs for it to be considered entirely forgivable. This provision is based on the amount of PPP loan provided, which shall cover 2.5 months of average payroll and should last for about eight to 11 weeks or through a 24-week period. However, it is deemed befitting by the small business owner. It was this concept of the second round of the Paycheck Protection Program where a small business owner may be able to control over how to handle potential reductions in their workforce by being able to choose the length of their covered period as long as it is within an eight to 10-week period, which asserts a small business shall be able to set aside and utilize 60% of the second draw loan solely on payroll costs.
Second Draw PPP Loans: Qualifications
For a small business to qualify for the second draw loans, it shall have a maximum of 300 employees, which is less than the original employee maximum of 500 personnel requirement in the first round of PPP loans. In addition, the first round of Paycheck Protection Program only requires for a small business to state how the economic uncertainty caused by the COVID19 has affected their business operations and has made the PPP loan necessary to qualify for the funding; however, in the case of the second draw loan, a minimum of 25% loss of revenue is required to be demonstrated through a comparison of the small business’s quarterly revenue or gross receipts for 2020 against their revenues for the first, second, and third quarters of the year 2019, showing a loss in revenue of 25% or more from at least one quarter of 2020 to that of the same quarter in the previous year. For small businesses that apply after January 1, 2021, gross avenues for the fourth quarter of 2020 may be eligible to use as proof of the 25% loss of revenue.
Small businesses who have received PPP loans from the first round of the Paycheck Protection Program must also have utilized the loan proceeds, or at least have a plan on how they shall use their original PPP funding in order to qualify for a second draw loan. Additionally, the new legislation includes added allowable expenses, such as property damage due to public disturbances that occurred in 2020, business software or other operating expenditures, supplier costs essential to the business’s operations, and workplace protection costs for COVID19 protection measures.
Second Draw PPP Loans: Simplified Forgiveness Application
The new coronavirus stimulus bill mandates the United States Small Business Administration (SBA) to create and provide a simplified PPP forgiveness application for small businesses who were only qualified for PPP loans of less than $150,000. The simplified application to be submitted by small business owners shall include details of the loan, as well as certifications from the business owners stating that the PPP funding was utilized correctly and within the bounds set by the Paycheck Protection Program, making the PPP loan proceeds eligible for forgiveness. Furthermore, the simplified application must fit on a single page and shall not include calculations and other additional information. Small businesses who have received PPP loans of $50,000 or less may make use of the existing simplified, single-paged PPP forgiveness application made by the SBA.
Economic Injury Disaster Relief Program Advances
In the previous coronavirus stimulus bill, small businesses and borrowers who have received an advance from the Economic Injury Disaster Relief Program amounting to $1,000 to $10,000 had this amount deducted from their PPP forgivable loans, which had an ultimate effect of having to repay the Economic Injury Disaster Loan (EIDL). In the new coronavirus stimulus bill, small businesses and borrowers are now allowed by the Small Business Administration to have the EIDL be independent of the Paycheck Protection Program and not reduce PPP loan forgiveness. Moreover, the SBA has indicated that those borrowers who have already received forgiveness from the first round of the Paycheck Protection Program and had their Economic Injury Disaster Loan Advances deducted from the total amount of forgivable loan may opt to amend their forgiveness applications.
PPP Loans in Bankruptcy
The new coronavirus stimulus bill includes a significant change that allows small businesses and borrowers in bankruptcy to be eligible to apply for the Paycheck Protection Program; however, the new loans to be given to entities that are facing bankruptcy shall be treated as administrative case as those in the borrowers bankruptcy case. In such instances that a part of the PPP loans is not forgiven, borrowers must pay the amount in full, subject to any Chapter 11 cases, and are not subject to “cram down.’
Paycheck Protection Program
In March of 2020, the United States Small Business Administration (SBA) – an executive branch agency established by the U.S. government to maintain and strengthen the economy of the United States, has initiated the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This federal law was designed to help millions of American citizens recover from the economic distress caused by the coronavirus by providing financial support and assistance to eligible small businesses and entities, allowing the nation to progress through the pandemic.
A small business may apply for the Paycheck Protection Program in order to receive PPP loans that are deemed forgivable under specific conditions. The Paycheck Protection Program aids small businesses to pay for certain permissible expenses, such as interest on mortgages, rent, and utilities, with particular specifications for payroll expenses. A set percentage of the PPP loan shall be used solely for payroll expenses. To obtain PPP funding, a qualifying small business must submit an application containing several documents, including certifications and acknowledgments of the provisions of the Paycheck Protection Program, reports on average monthly payroll expenses, employee count report, and other business statements that are required by the SBA. The applications of the small businesses are then received and processed by an SBA-approved lender, wherein the participating lender shall be responsible for determining the eligibility of the Paycheck Protection Program applicant. Should the small business or entity be deemed eligible, the participating lender will then provide PPP funding using its own monies.
The COVID19 Relief Package
As a part of the Consolidated Appropriations Act of 2021, Congress has approved the $900 billion COVID19 Relief Package that has the objective of helping millions of American citizens and revive a supplemental unemployment benefit for millions of unemployed Americans. The new coronavirus stimulus bill includes an additional $248 billion that is given for the funding of the second draw Paycheck Protection Program loans, new provisions for the PPP that tilts the favor further to the PPP beneficiaries, funding amounting to $15 billion for live venues, independent movie theaters and cultural institutions, and also a $20 million fund for the Economic Injury Disaster Loan Program. An $82 billion education funding was also set in the bill, where about 66% goes to the nation’s K-12 schools, and about 27% goes to colleges and universities. Under the stimulus bill, every eligible individual will receive $600 in stimulus checks, with an additional $600 for every dependent child. The relief package shall also include federal unemployment benefits amounting to $300 per week; however, Congress is yet to reveal the full language of the bill that shall determine the standards for eligibility.
House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer have asserted that even though the new coronavirus bill is still deemed inadequate as of the moment, the government would certainly push for more relief funds following the inauguration of the President-elect Joseph R. Biden Jr., who has also asserted that more relief will be coming in the nation in January 2021.
Overall, the stimulus package contains direct, individual payments for adults and families with an adjusted 2019 gross income of at most $75,000 to $150,000, additional benefits for the unemployed, educational resources to aid the school budgets that have been severely crippled by the pandemic, rental protections, targeting aid for small businesses, and funding for broadband infrastructure to help cover the cost of monthly internet bills of low-income families. The coronavirus bill also addresses the medical and health needs of American individuals, allotting portions of the $900 billion package to funding for vaccines and nursing homes, the childcare industry, and food security. Other initiatives covered by the coronavirus bill include a ban on surprise medical bills and support for climate measures that regulate the use and production of potent greenhouse gases.
Additional information will be provided by the Congress and the Small Business Administration within the next ten days, subsequent to the bill’s passing into law. If you need help or have questions about a ppp loan fraud please visit PPP.Attorney