The Paycheck Protection Program (PPP) reopens its doors to small business applicants for a second draw of PPP loans as the new coronavirus stimulus bill was approved and signed into law. The COVID19 relief package allows a second round of the Paycheck Protection Program, with recently updated terms and guidelines that better suit the needs of small businesses, especially in the current circumstances.
Eligible small businesses may now apply for second draw loans, and experience added benefits to the newly improved provisions of the Paycheck Protection Program. The new coronavirus stimulus bill provides the third installment on the PPP, amounting to about $284 billion, which will be officially available to support small businesses on March 31, 2021. Additionally, the new terms for the Paycheck Protection Program bring changes in the qualifications for eligibility for a second draw loan, list of allowable expenses, and conditions for loan forgiveness, among other things.
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Second Draw PPP Loans Funding and Loan Calculations
As was the case in the first rollout of the Paycheck Protection Program, the loan amounts provided to a small business applicant shall be based on its monthly payroll cost, particularly on the 2019 average monthly payroll cost multiplied to a factor of 2.5x. This shall provide sufficient funding for a small business to be able to last about two and a half months in terms of monthly payroll expenses; however, the factor changes for small businesses in the food and accommodation industries wherein a factor of 3.5x will be used for the computation of the PPP loan proceeds that they will receive.
In the Paycheck Protection Program’s previous round, a $10 million cap was set for PPP loan amounts. The case is different for the second draw loans, where a $2 million cap is set for the maximum amount of PPP loan to be provided to a small business. An exception is given to those who are yet to receive their first PPP loan, wherein the cap shall remain at $10 million.
Qualifications for the Second Draw PPP Loans
Small businesses with a maximum of 300 employees are eligible for a second draw loan, granted that second-time beneficiaries of the Paycheck Protection Program have already used or already has a plan to use the full amount of the PPP proceeds provided in the initial round of the Paycheck Protection Program.
Besides small businesses, specific non-profit organizations, sole proprietors, independent contractors, and self-employed individuals are also welcomed to apply for the second draw loans. The new coronavirus bill has updated this list and now includes certain housing cooperatives, other organizations, and recipients of the Economic Injury Disaster Loan (EIDL).
To be eligible for the second draw loans, a loss in revenue of at least 25% shall be shown by the small business by comparing their gross receipts from the first, second, or third quarter of the years 2019 and 2020. The gross receipts should be taken from the same quarter in order to have an objective comparison of the revenues.
Updates of the Forgiveness of Loans and List of Allowable Expenses
The 60% rule remains in the second draw loans, which means that recipients of the Paycheck Protection Program are still required to utilize at least 60% of the PPP loan proceeds on payroll expenses over a covered period of between 8 to 24 weeks in order to be eligible for the full forgiveness of the PPP loan. The rest of the loan proceeds shall be used only on certain permissible expenses, which have been extended in the new coronavirus stimulus bill.
The new allowances for additional expenses include workers protection expenditures, which shall cover personal protective equipment costs, among other adaptive investments, business software, costs of property damage, and suppliers costs. These are the added allowable expenses that a beneficiary of the Paycheck Protection Program may be able to use the proceeds on, apart from the original list that only includes interest on mortgages, payroll costs, rent, and utilities.
A significant change brought by the new coronavirus bill is the conversion of the PPP loans into completely tax-free income. In addition, any of the usually-tax-deductible expenses of the beneficiaries of the Paycheck Protection Program that are subject to the list of allowable costs shall also continue to be deductible. In all cases, the new stimulus bill states that there shall be no deductions to be denied, no tax attribute to be reduced, and no denial of basis increase. All aforementioned changes in the terms for tax and other asset attributes shall also be applicable to beneficiaries of the first and second round of the Paycheck Protection Program.
Paycheck Protection Program
The Paycheck Protection Program is an initiative that was designed to provide support to small businesses and millions of individuals in the United States, especially through the economic crisis that was caused by the COVID19 pandemic. The United States Small Business Administration initiated the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This federal law is meant to provide financial support and assistance to different entities.
In the first round of the Paycheck Protection Program, there were two installments that provided a total of over $649 billion in funding in PPP loans. The first installment came in March, and the second one came a month later, in April 2020. Small businesses may apply for the Paycheck Protection Program to receive forgivable loans. Applications for PPP loans are received and processed by an SBA-approved lender, who shall then determine if the small business is eligible for the PPP. If regarded as qualified, the participating lender subsequently funds the small business with a PPP loan using its own monies.
Regulations on the Paycheck Protection Program’s second draw loan shall be established by the Small Business Administration 10 days after the legislation has been signed into law, which will be until January 7, 2020.
New COVID19 Stimulus Bill
A $900 billion funding for COVID19 relief efforts has been approved by Congress under the Consolidated Appropriations Act of 2021 on December 21, 2020, and was signed into law on December 27, 2020. This new stimulus bill provides a number of ways to support and aid individuals, households, small businesses, and other entities through the current economic crisis. The COVID19 relief package is said to be allocated for the revival of supplemental unemployment benefits, aid for households and small businesses through the EIDL and the PPP, as well as aid for cultural institutions and live venues. Part of the funding will also go to the school budget and educational resources, rental protections, aid in monthly internet bills of several households, funding for childcare industries and nursing homes, and food security assistance. The relief package also offers direct payments for eligible adults and dependent individuals and allocation for vaccines. Apart from funding, the new coronavirus stimulus bill also has provisions that ban surprise medical bills and regulate the use and production of powerful greenhouse gases to support climate measures.