Recent COVID-19 relief includes $285 billion for a second round of PPP loans, along with additional flexibility for covered expenses, increased second draw loan amounts, and special provisions for food services organizations.
Key insights
- PPP loan size for NAICS 72 businesses increased from 2.5x to 3.5x average monthly payroll, up to a max of $2 million per location and $4 million per affiliated group.
- Multi-unit businesses applying for second draw PPP funding are limited to 300 employees per location.
- Additional covered expenses include operations expenditures, personal protection equipment costs, property damage costs, and supplier costs.
- The covered period is now anywhere from 8 to 24 weeks, as opposed to either 8 or 24 weeks.
Need assistance with second draw PPP funding?
Nearly a third of the relief provided as part of the Consolidated Appropriations Act, 2021, signed into law on December 27, 2020, has been allocated for another round of forgivable Paycheck Protection Program (PPP) loans.
Second draw PPP loans and the hospitality sector
The second round of PPP funding allows for larger loan sizes for NAICS 72 Accommodations and Food Services sector companies (e.g., hotels and casinos, bars and restaurants, and caterers), with an increase from 2.5x to 3.5x average monthly payroll costs, at a max of $2 million. The methodology for sizing the loan with average monthly payroll spent during the chosen pre-COVID reference period still applies (with either the average monthly payroll for all of 2019, or the average monthly payroll for the one year period before the date on which the loan is made). Of course, organizations are required to compare “gross receipts” for specific quarters or an annual comparison of 2020 to 2019 to prove economic loss during 2020.
The new law reduces the loan sizing for multi-unit hospitality businesses from a total of 500 to 300 employees per location. Additionally, any company with the NAICS 72 classification qualifies for a waiver of the affiliate requirements.
Updated covered expense categories and periods
The new covered expense categories are a welcome addition for the hospitality industry, as forgiveness can now be obtained for operations costs, property damage incurring in 2020 that was not covered by business insurance, supplier costs (e.g., food inventory), and costs incurred for personal protective equipment. Capital improvements made during 2020 to comply with social distancing requirements are also covered. This includes:
- Reconfiguration of dining room spaces
- Drive-thru windows
- Designated curbside pickup
- Other costs incurred to increase off-premise revenue streams
These new categories of covered costs apply to both the second round of PPP funding and the first round (for those that have not yet filed for loan forgiveness). That said, the requirement to spend 60% of the loan on payroll-related costs remains in effect for both loan programs.
The “covered period” has been updated to be anywhere from 8 to 24 weeks, which provides needed flexibility to hospitality companies that have faced and continue to face periodic shutdowns to slow the spread of COVID-19 in various jurisdictions. This change allows organizations to use the relief offered by the PPP program in whichever way makes the most sense for their local situation. As with the update to covered expense categories, the relief is available not only to the second draw PPP funding, but also to those that have not yet filed for forgiveness under the 2020 program.
Expect further guidance on the forgiveness process for the second draw PPP loans. In the meantime, a new application form — SBA 2483-SD —is currently available on the Small Business Administration website.
More tax saving opportunities
In addition to a second round of PPP funding, the IRS has expanded and clarified a few other tax saving opportunities that could significantly help the restaurant industry.
- Employee Retention Credit (ERC) — Previously off limits for those who received PPP, business owners that received PPP funds can now use this credit for the time period before or after the use of PPP funds. This credit can be applied retroactively to the 2020 tax year as well as to the first two quarters of the 2021 tax year. As the ERC works through your quarterly payroll return (Form 941), these benefits can be quickly converted to cash flow. As the criteria for this credit differs for the 2020 and 2021 tax years, contact your tax advisor for additional details and to find out how this could apply to your business.
- Work Opportunity Tax Credit — While this is not a new credit, the recent law change allows qualified employees (e.g., long-term unemployment recipients, qualified veterans, food stamp recipients) to be eligible through December 31, 2025. Credits range from $2,400 to $9,600 per qualified individual and apply to full-time, part-time, and seasonal employees who work a minimum of 120 hours within a 12-month period.
How we can help
CLA’s team of professionals stay informed of the latest COVID-19 relief programs. We’re here to help you navigate new changes and find potential opportunities to benefit your hospitality organization. Contact us if you’re in need of assistance.