New Paycheck Protection Program (PPP)

New Paycheck Protection Program (PPP)

On December 27, 2020, the Economic Aid Act (EAA) was signed into law to provide financial relief to small businesses suffering from the impact of the COVID-19 pandemic. The EAA amends the Paycheck Protection Program (PPP) that was established earlier this year under the CARES Act.

As before, PPP loans will be forgivable loans for specified purposes and designed to encourage businesses to keep employees on the payroll during the pandemic. The SBA will issue regulations to implement the Act shortly, business owners should contact their banker for details and access to the application when available.

How is the new PPP different from the first time?

The EAA eligibility requirements are somewhat more restrictive, but the EAA also substantially expands permitted uses of the loan.

A business that already received (and fully used) a PPP loan can apply for a new PPP loan, subject to eligibility requirements. Notable changes to the business eligibility requirements include:

    • A limitation of businesses with 300 employees or less
    • A requirement that the business must demonstrate a decline in gross receipts of at least 25% in any quarter of 2020 as compared to the same quarter in 2019
    • The maximum amount of the loan to be issued under the EAA will be limited to the lesser of $2 million, or 2.5 times your average monthly payroll costs in either the calendar year or the 12-month period prior to the loan being made
    • The 2.5 multiple changes to 3.5 for restaurants, hotels, and others in the “Accommodations and Food Services” industry category

 

How is the 25% reduction in revenues calculated?

Business owners will compare gross receipts of the business before expenses are subtracted. They will compare those for any quarter in 2020 to the same quarter in 2019 to determine if revenues decreased by at least 25%.

What if you weren’t in business all of 2019? Stick with us. This sounds more complicated than really is:

First, remember a business must have been in operation by Feb. 15, 2020, to be eligible.

    • If you were not in business during the first or second quarter of 2019 but you were in business in the third and fourth quarter of 2019, then you may compare any quarter in 2020 with the third or fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%.
    • If you were not in business during the first, second, or third quarter of 2019, but you were in business in the fourth quarter of 2019, then you may compare any quarter in 2020 with the fourth quarter of 2019 to determine whether gross receipts were reduced by at least 25%.
    • A business that wasn’t in business in 2019 but was in business before February 15, 2020, will compare gross receipts from the second, third, or fourth quarter of 2020 to that first quarter of 2020 to determine whether gross receipts were reduced by at least 25%.

Reminder: first quarter runs January 1 – March 31, the second quarter runs from April 1 – June 30, the third quarter runs from July 1- Sept 30 and the fourth quarter runs from October 1 – December 31st.

Expanded Eligible Expenditures

All PPP borrowers (other than those whose PPP loans have been forgiven before the date of enactment of the Act) can use PPP loan proceeds and receive forgiveness for the following new categories of eligible costs, each as is defined in the Act:

    • covered operations expenditures
    • covered property damage costs
    • covered supplier costs
    • covered worker protection expenditures

The Act does not provide a mechanism for borrowers that have submitted a PPP loan forgiveness application but have not yet received forgiveness to amend their PPP loan forgiveness application to include such additional eligible expenditures. Also, group benefit costs, including group life, disability, vision, and dental insurance costs, are now expressly included in payroll costs. More details on permitted uses will be available from the SBA shortly.

The proceeds of a PPP loan will be eligible for forgiveness if at least 60% was used for payroll costs and up to a maximum of 40% of the proceeds were used for the other permitted purposes. (Partial forgiveness is available if less than 60% of the proceeds were used for payroll costs.)

Applications for a PPP loan must be submitted no later than March 31, 2021, and PPP applications for loans of up to $150,000 will be simplified. (This includes the loan and the forgiveness applications)

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