By Roman Basi
President Trump recently signed into law the $900 billion COVID-19 relief bill that was passed by Congress. The legislation, the Consolidated Appropriations Act of 2021, calls for direct payments to individuals and funding to other various communities and sectors that have been hit hardest directly by COVID-19. In this article, I will examine the second round of Paycheck Protection Program (also known as PPP2) funding administered by the Small Business Association using local banks of potential applicants.
Eligibility. PPP2 loans will be available to first-time qualified borrowers in addition to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they meet the following guidelines: Business has 300 or fewer employees; must have used—or will use—the full amount of their first PPP loan; and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
PPP2 also provides potential funding to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and destination marketing organizations, provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available.
PPP2 will also permit first-time funding to the following entities: Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans; sole proprietors, independent contractors and eligible self-employed individuals; not-for-profits, including churches; and accommodation and food services operations with fewer than 300 employees per physical location.
As with the first round of PPP funding, the costs eligible for loan forgiveness with PPP2 include: payroll, rent, covered mortgage interests and utilities. PPP2 also makes the above costs eligible for forgiveness, as long as the same terms that applied for PPP1 are followed: the borrower must spend no less than 60% of the funds on payroll over the covered period of eight weeks or 24 weeks. The PPP borrower will likely receive two-and-half times their average monthly payroll cost in the year prior to the loan or the calendar year, similarly to PPP1.
The new COVID-19 relief bill also simplifies the application process for loans under $150,000. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.
The Act specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP as part of the CARES Act.
Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He co- authored the article with Michael Hampleman, associate attorney.