Getting Ready for Latest Round of PPP
At the end of 2020, lawmakers passed the Consolidated Appropriations Act, 2021, with new economic relief measures in response to COVID-19. The new law includes $325 billion in aid to small businesses experiencing economic hardship as a result of the pandemic, including $20 billion for Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities and $284 billion in added funding for the Paycheck Protection Program (PPP).
Along with new funding for the PPP’s low-interest, forgivable small business loans, the legislation updates the program in important ways. Most notably, it now allows certain borrowers to apply for a second PPP loan, in addition to accepting applications from first-time borrowers.
Note that there are still uncertainties regarding the rules for first- and second-time PPP loan applications, and the SBA is releasing additional guidance. We will provide new information about the PPP as it becomes available. In the meantime, we want to help by sharing this overview of the program’s recent changes.
The PPP will continue to emphasize each borrower’s payroll expenses. Both the formula to calculate loan amounts (based on average monthly payroll) and loan forgiveness requirements are staying the same. But there are some important updates:
- Covered expenses now tax deductible. The recent legislation has clarified that covered business expenses paid with PPP funds are tax deductible, even for borrowers who already applied for forgiveness. (This overrides an earlier statement from the IRS that expenses paid with forgiven PPP funds were not deductible.) A borrower’s loan forgiveness amount is still not taxable income.
- A second PPP loan for eligible borrowers. Borrowers must meet more strict requirements to qualify for a “second draw” PPP loan (see the next section).
- Simplified forgiveness process for loans up to $150,000. Previously, a streamlined process was available for loans up to $50,000.
- No forgiveness reduction for borrowers with an EIDL grant. Before, participants who also received an EIDL grant had their loan forgiveness amount reduced by the grant amount. ENB is awaiting guidance from the SBA on how the reduction will be returned to those borrowers.
- More flexible covered period. Instead of using their PPP funds during either an eight- or 24-week covered period, borrowers can choose a covered period that is any amount of time from eight to 24 weeks from when the funds are disbursed.
- Expanded list of eligible expenses. More business expenses can now be paid for with PPP funds (and are eligible for forgiveness). These are primarily expenses related to helping businesses operate during the pandemic. This expanded list does not apply to borrowers who already submitted a loan forgiveness application for their initial PPP loan.
Loans for Returning & First-Time Borrowers
In this next round of PPP funding, borrowers who already received a PPP loan can apply for a second loan of up to $2 million (based on the amount of their payroll) if they meet certain requirements (reduced from a limit of $10 million for first-time PPP borrowers). To apply for a second loan, the borrower must have:
- 300 or fewer employees
- Used or will use the full amount of their first PPP loan
- Experienced a 25% decline in gross revenue during any quarter in 2020 (compared with the same quarter in 2019)
This next round will also allow new first-time borrowers, including:
- Companies with 500 employees or fewer, even if they are eligible for other SBA 7(a) loans
- Sole proprietors, independent contractors, and self-employed individuals
- Not-for-profit organizations including churches
- Eligible businesses in the accommodation and food services industry with fewer than 300 employees per location (these borrowers can also apply for a loan up to 3.5x their average monthly payroll, rather than 2.5x that amount as for other businesses)
What Happens Next?
The Small Business Administration (SBA) has released interim final rules implementing these changes to the Paycheck Protection Program. Based on the SBA’s guidance, we will reach out in a separate email with more details, including information about the application process and document requirements for eligible first-time and second-draw borrowers.
ENB will require that PPP loan funds be deposited to an ENB checking account. If you think you’ll be applying for a PPP loan, we encourage opening an account as soon as possible. This can be done by appointment at an ENB Community Banking Office. We’ll also come to your business. To schedule, please reach out to your Relationship Manager or call our Customer Service Center at (717) 733-4181. You’re also welcome to complete the form below. Please indicate the location (whether it be our office or yours) and time you’d prefer. We will then follow up and confirm.
For general facts about the PPP, please visit the SBA’s Paycheck Protection Program webpage.
As the Paycheck Protection Program continues to evolve, we’re committed to providing helpful information and ongoing support for you and your business. If you have questions or would like more details on a current or new PPP loan, please call your ENB Relationship Manager or our Customer Service Center at (717) 733-4181. As always, you are also encouraged to seek independent accounting, legal and tax advice on decisions that require such professional reviews and to assist you in determining your priorities.
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