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Second Draw PPP Loans included in the Newly Approved COVID19 Stimulus Bill
A newly approved coronavirus stimulus bill that has been approved by Congress on the night of December 21, 2020, was signed into law by President Donald Trump on the night of December 27, 2020. The stimulus package gives millions of American citizens access to a $900 billion funding meant to aid individuals, households, and small businesses that are currently struggling due to the economic crisis brought upon by the coronavirus pandemic. One of the highlights of this new COVID relief package is the Paycheck Protection Program (PPP) changes that allow small businesses to be eligible for a second draw loan.
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Second Draw of PPP Loans
Through the new COVID19 relief package, the Paycheck Protection Program has received the third installment of funding amounting to $284 billion in PPP loans and includes developed provisions from the original program. In the previous round of the PPP, Congress provided over $649 billion funding divided into two installments – about $349 billion funding given in March of 2020 and $300 billion funding in April of 2020. Older provisions of the Paycheck Protection Program also only allow qualifying businesses to use the PPP loan on a shortlist of certain permissible expenses, such as interest on mortgages, payroll costs, rent, and utilities. With the new coronavirus stimulus bill, a number of changes in the PPP that give even more support to small businesses are made in the program’s provisions. Aside from allocating additional loan funds, the second round of PPP includes updates on the application requirements for PPP loans and developed rules for loan-forgiveness taxation and loan standards.
PPP Loan Benefits and Forgiveness
With similarities to the Paycheck Protection Program’s original terms, several provisions remain the same for the second draw loans, including the words to loan-forgiveness. As such, the second round of PPP loans will also be entirely forgivable, given that the small business is able to utilize at least 60% of the PPP proceeds on payroll expenses. Otherwise, the PPP loan will not be forgiven and would incur an interest rate of 1% and a term of five years.
A qualified business will receive a loan from the Paycheck Protection Program that shall cover two and a half months of the small business’s monthly payroll costs, similar to the program’s original terms. This means that the calculation for the PPP loan that a small business will receive is based on the average monthly payroll cost of the small business from the year 2019, multiplied to a factor of two-point-five (2.5); however, special cases in loan amount calculation exists for food and accommodation industries, seasonal and new businesses, sole proprietors and independent contractors, and partnerships. The loan amount calculation for small businesses in the food and accommodation industries varies in the months covered by the PPP loan. Three and a half months of monthly payroll costs or a factor of three-point-five (3.5) will be provided to the small business. For other types of businesses, the 2.5 factor will remain, but the periods applicable to calculating the monthly payroll costs will vary.
New Addition to List of Permissible Expenses for PPP Loans
The new coronavirus stimulus bill is expanding the permissible expenses that a small business is allowed to utilize the PPP loan proceeds for. In contrast to the Paycheck Protection Program’s first rollout, where the eligible expenses only include payroll costs, rent, and utility expenses, new eligible expenses now include operations expenditures, property damage costs, supplier costs, and worker protection expenditures. Incorporating these new permissible expenses allows a small business to use the PPP proceeds on business software, restoring costs due to public disturbances in 2020, cost of ordering goods, and personal protective equipment for workers to remain COVID compliant. Expansion of the list of eligible expenses for the Paycheck Protection Program is applicable for all PPP loans, including those obtained prior to August 8, 2020.
Eligibility for Second Draw PPP Loans
The second draw PPP loans are available to businesses that have been in operation prior to February 15, 2020, and with only a maximum of 300 employees. Additionally, a minimum of 25% loss of revenue in 2020 shall be shown and presented through gross receipts from any of the first three quarters (first, second, or third) in 2020 compared to the gross receipts from the same quarter in 2019. To use the gross receipts from the fourth quarter of 2020, one must make the applications after January 1, 2020, to be eligible for a second PPP loan.
Simplified Forgiveness Application
Although there is an existing single-paged, simplified PPP forgiveness application made by the United States Small Business Administration (SBA) for the beneficiaries of the Paycheck Protection Program who only received PPP loans of $50,000 or less, the new coronavirus stimulus bill mandates the SBA to provide supplementary guidelines for small business who were only qualified for PPP loans of $150,000 or less. This allows small businesses to be eligible for the simplified forgiveness application if they only received less than $150,000 of PPP proceeds. The simplified forgiveness application shall only consist of the details of the PPP loan, a statement that declares how the proceeds from the Paycheck Protection Program were used, and authentication from the business owner that the PPP loan was used in accordance with the rules of the program for eligibility for forgiveness.
Paycheck Protection Program
The Paycheck Protection Program is an initiative of the United States Small Business Administration under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This federal law was enacted in March of 2020 as a response to the repercussions of the COVID19 pandemic in the nation, especially in terms of millions of American citizens’ financial state. The SBA’s ultimate goal in creating the Paycheck Protection Program is to aid small businesses struggling through the current economic crisis by providing forgivable loans.
For a small business to obtain a PPP loan, an application containing documents and business statements must be submitted to the SBA. A participating lender will then check and determine if the small business is qualified according to the SBA guidelines. Subsequently, if the applicant is deemed eligible to be a part of the Paycheck Protection Program, the SBA-approved lender will then fund the small business in terms of PPP loans using its own monies.
Other Benefits of the COVID19 Stimulus Bill
Congress approved a $900 billion COVID19 Relief Package as a part of the Consolidated Appropriations Act of 2021. The stimulus bill is said to aid millions of citizens of the United States. The COVID19 Relief Package includes funding to revive supplemental benefits for small businesses, unemployed individuals, and households. The relief package also contributes to educational resources and school budget, wherein about $82 billion is provided for education funding to be divided among the nation’s K-12 schools, colleges, and universities. Direct payments through stimulus checks of $600 are also given to eligible adults and households with a maximum of $150,000 adjusted 2019 gross income. Every dependent child of an eligible household shall also receive a stimulus check. Furthermore, the relief package also includes federal unemployment benefits amounting to $300 per week, funding for live venues, independent movie theaters and cultural institutions, and financial resources for initiatives such as the Economic Injury Disaster Loan Program and the Paycheck Protection Program that aids individuals, households, and small businesses through the current economic crisis.
In addition to the aforementioned resources that the new COVID19 relief package grants the American citizens access to, several more provisions of the coronavirus bill provide services and aid to individuals and households. Such aid is rental protections, funding for broadband infrastructure to help cover the monthly internet bills of low-income families, and access to vaccines. Moreover, the relief package includes financial aid for nursing homes, childcare, and food security. A ban on surprise medical bills is also an initiative under the new coronavirus stimulus bill, along with a supportive stance for climate measures.
The Congress allows the Small Business Administration 10 days, following the passing of the bill into law, to finalize the details and guidelines of the provisions of the new coronavirus stimulus bill, which gives the SBA until January 7, 2020, to provide revised rules and guidelines for the programs and initiatives under the new COVID19 relief package.