Deeper Dive into PPP

Yesterday’s post was more of a summary of some of the key changes from the new COVID stimulus bill.  Today, we dive deep into the changes related to PPP loans.

Additional Eligible Expenses

The following types of expenses will now qualify:

• Covered operation expenses – Payment for any software, cloud computing, and other human resources and accounting needs.
• Covered property damage costs – Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
• Covered supplier costs – Any costs that are essential to the recipient’s operations at the time the loan was made plus any perishable goods.
• Covered worker protection expenditure – Personal protective equipment and adaptive investments to help the borrower comply with federal health and safety standards or any equivalent State or local guidance between March 1, 2020 and the end of the national emergency declaration.

Selection of Covered Period for Forgiveness

The borrower can elect to use any period that is at least 8 weeks long, but no more than 24 weeks.  This allows the borrower to ask for forgiveness before the end of the 24-week period.

Simplified Application

For loans under $150,000, a new simplified one-page application is allowed. Borrower signs and submits to the lender a certification that includes number of employees retained; the estimated total amount of the loan spent on payroll costs; and the total loan amount.  Borrower must attest to meeting the PPP loan requirements, etc.

Specific Group Insurance Payments as Payroll Costs

Other employer-provided group insurance benefits such as life, disability, vision or dental insurance will qualify as payroll costs.

PPP Second Draw Loans

A farmer, who qualifies, may obtain an additional second PPP loan of up to $2 million.

• Employs not more than 300 employees;
• Have used or will use the full amount of their first PPP loan; and
• Demonstrates at least a 25% reduction in gross revenues in any quarter in 2020 compared to same quarter in 2019.

If the loan is less than $150,000, the entity may submit a certification that they meet the revenue loss requirements.

The 60/40 split between payroll and non-payroll costs is maintained.

Any borrower who returned all or part of their PPP loan may reapply for the maximum amount allowed so long as they have not received forgiveness (another reason it was prudent to not file for forgiveness too soon).  Additionally, if loan calculations have increased due to changes in interim final rules, they may work with their lenders to modify the loan and get the increased amount even if Form 1502 has already been submitted.

Special Farmer Gross Revenue Rule

Farmers who operate as a sole proprietor, independent contractor or self-employed individual (therefore it is unlikely that partners will qualify since those loans are at the partnership level) will qualify for the maximum $20,833 loan based on 2019 gross revenues being at least $100,000.  If you received a loan based on your earnings less than that amount, and your gross revenues were at least $100,000 you will be able to increase your loan to that amount.  However, if your loan has already been forgiven, this change will not apply (we will need details from the SBA).  Lenders are allowed to recalculate these loans if it would result in a larger loan.

This should also allow you the maximum amount for the Second PPP loan as long as you qualify based on a revenue reduction in 2020 versus 2019.

This provision is solely for receiving a loan based upon your self-employed income.  Loan amounts for employees are still based on applicable payroll costs.

Definition of a Seasonal Employer

We finally got a definition of a seasonal employer.  It is an employer which (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year.

Extension of Program

The program is extended to March 31, 2021.

Repeal of EIDL Advance Deduction

The new Act repeals Section 1110(e)(6) of the CARES Act that required PPP loan forgiveness to be reduced by any EIDL advances (up to $10,000).  This is a retroactive provision and will allow any PPP borrowers who had forgiveness reduced by this amount to have it forgiven.

Tax Treatment of PPP and Other Loan Forgiveness

The Act clarifies that gross income does not include forgiveness of certain loans including PPP loans, emergency EIDL grants and other certain loan repayment assistance.  It also clarifies that all expenses incurred in arriving at loan forgiveness will remain 100% deductible.

Conclusion

As we have indicated in several posts, it was wise to wait to ask for forgiveness.  The final rules from this new Bill indicate that almost everything we could hope for in regard to PPP loan forgiveness and additional stimulus has occurred, but in some cases you are out of luck if you have already gotten forgiveness.