​​Assistance for Businesses: PPP & EIDL (Round II)

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On the evening of Sunday, December 27th, 2020, the President signed the “Consolidated Appropriations Act, 2021" into law. This Act, which funds the government through most of 2021 and provides absolutely crucial COVID-19 relief, has been long awaited and the subject of much debate in the waning months of 2020.
The Act, which is now officially law, extends federal unemployment benefits, provides for $600 cash payments to Americans, extends eviction moratoriums, provides housing assistance payments, funds food assistance programs, and creates a second round of Paycheck Protection Program (“PPP”) loans for small businesses.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by Congress on March 27th, 2020.  This over $2 trillion economic relief package is designed to assist Americans with the public health and economic impacts of COVID-19.

The CARES Act provides fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs.


HERE'S WHAT BUSINESS OWNERS NEED TO KNOW


1) Second Draw  for PPP & EIDL Loans

-The new legislation allocates around $284 billion and refers to the new loans as second draw loans. The loan limit is $2 million, and the amount a small business will qualify for is determined by taking their average monthly payroll in 2019 and multiplying it by 2.5. Of course this new round of PPP funding comes with additional tax obligations and consequences .

-Note there are special provisions for food service businesses. Code 72 entities consist mostly of food service provides. For these borrowers, the maximum loan amount they are eligible to receive is based upon 3.5 times the average total monthly payroll costs incurred or paid during the 1-year period before the date on which the loan is made or, at the election of the borrower, calendar year 2019, as opposed to the 2.5 multiplier that applies to all other borrowers. Definitely consult a tax lawyer to understand how to maximize your company's rights and obligations during this second round of funding.


HERE'S WHAT BUSINESS OWNERS NEED TO KNOW:

For example, if you had an average monthly payroll in 2019 of $100,000, then your small business would qualify for $250,000. If you were a restaurant or other qualifying food business, then you would qualify for $350,000.


2) PPP Eligibility

-In the Act. “eligible recipient” is defined as “any business concern, nonprofit organization, housing cooperative, veterans organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative” AND

-Meets these 3 criteria 

i) Employs not more than 300 employees; 
ii) Has or will use the full amount of their first PPP loan; and 
iii) Had gross receipts during the first, second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter in 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the same quarter in 2019. (The 25% loss-of-revenue test)


HERE'S WHAT BUSINESS OWNERS NEED TO KNOW:

Under the 25% loss-of-revenue test, the small business will compare their 2020 quarterly revenue ( gross receipts) against their 1st, 2nd and 3rd quarters of revenue in 2019. In order to qualify for a second draw PPP loan, a borrower must be able to show a loss in revenue of 25% or more from at least one quarter of 2020 as compared to that same quarter in 2019


3) PPP Loan Forgiveness

-The second draw loans are forgivable but must be spent 60% on payroll costs

-The legislation mandates the SBA to create a simplified PPP forgiveness application for small businesses whose PPP loans were less than $150,000.

-The Act expands on the list of forgivable expense. Some newly added forgivable expenses include:

i) Covered operations expenditures defined as “a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.” 
ii) Covered property damage cost defined as “a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.” 

iii) Covered worker protection expenditure defined as means an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the Coronavirus Disease 2019 (COVID–19) expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19. 


HERE'S WHAT BUSINESS OWNERS NEED TO KNOW:

Expands expenses eligible for forgiveness to cover operating expenses, property damage costs, supplier costs, and investments made to comply with safety guidelines for protecting workers against COVID-19 and excludes PPP funds from gross income for tax purposes.