This is the 23rd edition of my New Regular series, which didn’t begin as a series because no one on the planet imagined Main Street would still be getting hammered by two very dangerous forces: a deadly virus and state/local politicians. So, welcome to 2021 when, apparently, Normal has checked-out for another year.
Since last February, your humble correspondent has been reporting on what I’ve named the “Three U’s of the Apocalypse”: an Unprecedented coronavirus pandemic, precipitating an Unprecedented economic shutdown, necessitating Unprecedented direct government assistance. Now, in my fourth report in this series to focus on that last “U,” let’s bring you up to date on the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act’’, or PPP2, for short – which is at least five months late.
This is essentially the availability of another round of Paycheck Protection Program (PPP) funds, with new money and new rules that update the original CARES Act of March 27, 2020. The new law also delivers some excellent new provisions that you’re going to like.
Here’s the essence of this new PPP cupcake with new sprinkles.
The New Cupcake
The new Act appropriates approximately $284 billion in new funds for small businesses to be delivered again by the original PPP process: the SBA working with banks to distribute the cash in the initial form of a loan.
Eligibility and Availability
The new money isn’t yet available, because the SBA hasn’t delivered the underwriting rules to banks, so some specifics are still in flux, but the PPP2 window will close after March 31, 2021. Check with your CPA and/or banker based on your situation, but here are the broad eligibility parameters for most applicants.
If you have an original PPP loan, you can reapply for PPP2 funds. If you did not apply for the original, you can apply for PPP2, but there are new rules that tighten eligibility. For example, a) PPP2 will come with a lost-revenue test, which again, is where your CPA and bank will be handy; b) it isn’t for companies with more than 300 employees, are publicly traded, or engaged in lobbying.
There are provisions specifically for accommodation and food service businesses, aka restaurants, hotels, venues, etc. This group can borrow up to 3.5x their monthly payroll and have a broader range of how they use the money. If you’re in NAICS Code 72, your industry trade group will be all over this.
For most businesses, the original PPP parameters apply, including borrowing 2.5x your monthly payroll number, and the 60% rule for PPP funds being used for payroll. It’s likely the 5-year loan amortization at 1% interest will be repeated, along with up to one-year initial deferral of debt service. And if you received PPP1 and come back for PPP2, you will have two loans.
Like the first round, PPP2 funds are eligible for forgiveness, but as noted earlier, there are slightly different parameters. So, if you wind up with two PPP loans, you’ll comply with two sets of forgiveness rules. If you have not applied for forgiveness for the first loan, your application period hasn’t changed, but as you’re about to learn, the process has, in most cases for the better.
Here’s new sprinkles on both PPP cupcakes: For either round of PPP loans under $150,000 (85% of all PPP loans), there’s a new one-page forgiveness form replacing the previous homework versions.
For PPP1, if you have not filed for forgiveness, you’ll use your original eligibility rules with the new form, but if your loan has already been forgiven, the only thing left is to reconcile the EIDL issue below.
Any EIDL grant funds (up to $1,000 per employee, maximum of $10,000) were not forgiven with the PPP1 forgiveness process. But the new Act rescinds that rule and includes forgiveness of EIDL funds in addition to PPP forgiveness. If you repaid EIDL, you can apply to get that money back.
Speaking of EIDL, no more grant funds are available, but an EIDL loan through the SBA is still possible, which is a completely different animal than PPP – slower process, higher interest, longer amortization (SBA.gov).
One of the two big sticking points of the PPP is how the Treasury Department and IRS unilaterally applied their own post hoc rules to the CARES Act. As PPP funds were being delivered, we learned that, while funds forgiven would not be treated as taxable income, any expenses the assistance money was intended to cover would also not be tax deductible. But in the new Act, Congress overrode the IRS, retroactively making the expenses covered by forgiven PPP funds as deductible as ever.
The second sticking point is a glaring omission in the new law. You and your business are currently exposed to lawsuits by customers and/or employees who may claim that they were exposed to COVID-19 in your establishment. It could have been as simple as this: “No business shall be held liable for COVID-related claims simply for allowing customers to enter their establishment, or employees to return to work.” Apparently, the only lobbying group that writes bigger checks to Washington than China is the trial bar.
Don’t Try This at Home
My job here is to inform you enough to motivate you to apply for assistance while scaring you enough to get help from your CPA and banker. Let these professionals help you with the application and forgiveness forms and counsel on how you should proceed with both processes for your specific circumstances.
Finally, no one will beg you to take a PPP loan. But if you need financial help staying in business, take the money.
Write this on a rock … Proverbs 16:18 – “Pride goeth before a fall.”