SBA.COM® PAYCHECK PROTECTION PROGRAM (PPP) INFORMATION SHEET: Click Here
COVID-19 relief bill addresses key PPP issues
The U.S. Senate and House of Representatives overwhelmingly passed a $900 billion COVID-19 relief bill Monday night that:
- ensures tax deductibility for business expenses paid with forgiven PPP monies
- provides additional PPP aid to struggling business
- creates a simplified forgiveness application for loans up to $150,000. SBA and the banks will have to update the Form 3508S, Forgiveness Application to accommodate this change.
The Senate approved the bill with a 92-6 vote at about 11:45 p.m. Monday, just a couple of hours after the House approved it 359-53. The measure now goes to President Donald Trump, who is expected to sign it into law. UPDATE: President Trump signed the bill into law Sunday night, December 27th.
The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions. We will keep you posted as additional guidance becomes available.
Who is eligible to apply
PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
- Have 300 or fewer employees.
- Have used or will use the full amount of their first PPP loan.
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020.
PPP2 will also permit first-time borrowers from the following groups:
- 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.
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
PPP loan terms
As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Simplified application and other terms of note
The new COVID-19 relief bill also:
- Creates a simplified forgiveness application process for loans of $150,000 or less. 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. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
- Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.
You must apply for forgiveness through your lender. There are 3 applications available as as follows:
- 3508EZ – for sole proprietors, independent contractors, and self-employed individuals who had no employees
- 3508S – for businesses with loans of $150,000 or less (this form is being updated by the SBA for changes enacted in the most recent bill.)
- 3508 – for others who do not meet the criteria to use the simplified forms.
Tax deductibility for PPP expenses
The bill also 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 $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.
The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been redesignated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
When are Loan Forgiveness Applications Due?
The loan forgiveness forms have an expiration date of 10-31-2020 in the upper right hand corner. According to the SBA FAQs, Question 4 released October 13, 2020 this is NOT the deadline. The answer…
“Borrowers may submit a loan forgiveness application any time before the
maturity date of the loan, which is either two or five years from loan origination.
However, if a borrower does not apply for loan forgiveness within 10 months after the
last day of the borrower’s loan forgiveness covered period, loan payments are no longer
deferred and the borrower must begin making payments on the loan. For example, a
borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to
apply for forgiveness before loan repayment begins.
The expiration date in the upper-right corner of the posted PPP loan forgiveness
application forms is displayed for purposes of SBA’s compliance with the Paperwork
Reduction Act, and reflects the temporary expiration date for approved use of the forms.
This date will be extended, and when approved, the same forms with the new expiration
date will be posted.”
A link to the full FAQ is provided below.
SBA Guidance (updated frequently)
Please use the below links for the most recent guidance from the Small Business Association…
- SBA Paycheck Protection Program FAQs
- Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- Loan Details and Forgiveness
PPP Flexibility Act, Signed 06/05/2020
President Trump, TODAY, signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in an attempt to address many concerns expressed by the small business community around the Paycheck Protection Program (PPP) loan forgiveness guidelines.
The main points of the legislation include:
- The choice to extend the eight-week forgiveness period to 24 weeks, or keep the original eight-week period.
- A drop to 60% from 75% for amount spend on payroll.
- A 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31. The previous deadline was June 30.
- Two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
- Five years to repay the loan instead of two. The interest rate remains at 1%.
Click here to read a more comprehensive overview of the Paycheck Protection Program Flexibility Act.