Need another PPP loan for your business? Here are the new rules

01 06 21 1280482420 bb 560x292 - Need another PPP loan for your business? Here are the new rules

A new law was recently signed providing additional relief for businesses and individuals during the COVID-19 pandemic. One item of interest for business owners in the Consolidated Appropriations Act (CAA) is the opportunity to take out a second loan under the Paycheck Protection Program (PPP).

The basics

The CAA permits certain businesses who received a PPP loan to take out a “PPP Second Draw Loan” of up to $2 million. To qualify, you must:

  • Employ no more than 300 employees, unless you’re a business that satisfies an NAICS code classification of 72 or an eligible news organization with more than one physical location,
  • Received and have used or will use the full amount of your first draw PPP loan and
  • Can demonstrate at least a 25% reduction in gross receipts in any quarter during 2020 relative to the same quarter in 2019.

Eligible entities include for-profit businesses (including those owned by sole proprietors), certain nonprofit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, independent contractors and small agricultural co-operatives.

Here are some additional points to consider:

Loan terms

Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the year preceding the loan or the calendar year. However, borrowers in the hospitality or food services industries may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.

Individuals who obtain a PPP loan may also be eligible for the Employee Retention Credit (ERTC)

The CAA allows borrowers who received a PPP loan to possibly benefit from the ERTC on both a retrospective and prospective basis. Prior to the CAA, borrowers were not permitted to benefit from both the PPP and the ERTC. In addition, the eligibility requirements and available per employee credit amounts for the 2021 ERTC have been significantly expanded.

Gross receipts and simplified certification of revenue test

PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue loss requirement. Nonprofits and veterans’ organizations may use gross receipts to calculate their revenue loss standard.

Loan forgiveness

Like the first PPP loan, a PPP Second Draw Loan may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as rent, mortgage interest and utilities of 40%. Forgiveness of the loans isn’t included in income as cancellation of indebtedness income.

Application of exemption based on employee availability

The CAA extends current safe harbors on restoring full-time employees and salaries and wages. Specifically, it applies the rule of reducing loan forgiveness for a borrower reducing the number of employees retained and reducing employees’ salaries in excess of 25%.

Deductibility of expenses paid by PPP loans

The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted. The IRS eventually took the position that these expenses were nondeductible. The CAA, however, provides that expenses paid both from the proceeds of loans under the original PPP and PPP Second Draw Loans are deductible.

Further questions

Contact us with any questions you might have about PPP loans, including applying for a Second Draw Loan or availing yourself of forgiveness.

Read: COVID-19-Related Relief Is Signed Into Law