As part of the Coronavirus Relief Bill approved by President Trump on December 27, 2020, $35 billion in additional funding for new borrowers has been set aside for the Paycheck Protection Program (PPP). Established through the March 2020 CARES Act, the PPP originally offered owners of businesses with 500 or fewer employees who found themselves in financial jeopardy as a direct result of the pandemic an opportunity to apply for forgivable loans of up to $10 million. Owners seeking assistance to help them keep their businesses open and operational were permitted to use these funds to cover their payroll, facilities rental costs, utilities, and mortgage payments.

Capital Building showing where the Coronavirus Relief Bill was signed opening up a second round of PPP Loan Applications

With the adoption of December 2020’s Coronavirus Relief Bill, several significant enhancements to the original PPP have been made that affect both existing and new borrowers.

Prior conflicting guidance between language contained in the CARES Act and subsequent IRS regulations related to the PPP has been resolved in the new bill. The new legislation provides a double tax benefit which allows both previous and first-time borrowers to take advantage of tax-free loan forgiveness and to deduct business expenses paid for with PPP loan funds.

If you were a first-round borrower, as long as you have not yet applied for forgiveness on your original PPP loan, you are eligible to use your loan to pay for items in four newly-added categories: operations, property damage, suppliers, and worker protection. New borrowers are also entitled to put their PPP funds towards items in any of these categories. One caveat to keep in mind, however, is that while these costs in any of these buckets can qualify for loan forgiveness, they are considered non-payroll costs and can therefore only constitute 40% or less of the total costs you are looking to be forgiven.

In addition to giving borrowers new categories against which to use their PPP funds, the Coronavirus Relief Bill also provides added flexibility for the borrower in determining the length of their covered period, provided these conditions are met:

  • The covered period must fall between 8 and 24 weeks of the loan issuance date, and
  • The start date of the selected period must begin on the date the loan was received and end anytime prior to 24 weeks of that origination date.

A more lenient view of loan forgiveness is afforded to those borrowers who took out PPP loans of less than $150,000. Under the Coronavirus Relief Bill, these loan recipients will simply need to complete a one-page form in order to receive forgiveness on their PPP loan and are not subject to an audit unless they obtain the funds fraudulently or use the loan monies for ineligible items.

Those who have already applied for and received a PPP loan are still eligible to apply for a new PPP loan of up to $2 million, provided that they:

  • Have exhausted the prior PPP funds they borrowed,
  • Employ less than 300 workers, and
  • Can demonstrate that they’ve lost 25% in gross receipts in a single quarter during 2020, as compared to that same quarter in 2019.

For most businesses, the calculation to determine the loan amount is 2.5 times the business’ monthly 2019 payroll, but hospitality industry businesses that were hit particularly hard by the pandemic are allowed to borrow at 3.5 times their monthly 2019 payroll amount. Although most businesses can apply, a few select, atypical businesses are prohibited from seeking PPP loans.

Should employers who have taken out a PPP loan cut salaries or employees during the covered period they designate, the amount of the loan eligible for forgiveness will decrease.

If you have questions about whether or not you qualify as a new or second round PPP loan applicant from the Coronavirus Relief Bill, contact your Untracht Early advisor.