What The Stimulus Package Says About The New PPP Loans Coming Out In 2021
2020 was a rough year for all of us, and many small business owners were hit particularly hard. Fortunately, with the new year comes a new bill offering COVID relief for those businesses impacted by the coronavirus. On December 27, 2020, President Donald Trump signed into law the Consolidated Appropriations Act, 2021. Shuffling through this 5,593-page bill isn’t something that the average person is prepared to do, so let’s cut right to the chase. For small business owners, what stands out about this bill is that it provides funding for round two of the Paycheck Protection Program (PPP) — something many small business owners used in 2020 to keep their businesses afloat.
The bill allots $284 billion to the second round of PPP funding, granting business owners additional relief in the form of forgivable loans. As government mandates continue to keep some businesses shuttered or under strict regulations, a PPP loan could be just what you need to keep your business on track in 2021, regardless of whether or not you participated in the first round.
In this article, we’re going to take a look at round two of the PPP. We’ll look at who qualifies, what’s different about this round of funding, and how you can get your funds.
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Official Guidance For New PPP Loans Is Forthcoming
The PPP was first introduced under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and small businesses were able to apply for forgivable loans up to $10 million beginning in April 2020. Unfortunately, though, funding ran out.
The Consolidated Appropriations Act, 2021 has replenished funding, giving businesses another opportunity to receive COVID relief. It’s important to note, though, that as of this writing, the bill was only just signed into law. Additional changes may be forthcoming in the days (or even months) to come, and there are still a few unknowns.
Official guidance from the Small Business Administration and the Internal Revenue Service has not yet been released. However, we will continue to keep this and other PPP-related content updated here at Merchant Maverick, so you’ll always be in the know. For now, though, let’s dive into what we do know, and what this new bill means for your business.
New PPP Rules According To The Stimulus Bill
The second round of PPP funding looks a little different from the first round. Fortunately, many of these changes benefit small business owners. Let’s take a look at the major changes for the next round of funding.
- Maximum Borrowing Amount: The first round of PPP loans were capped at $10 million. For the second round, maximum borrowing limits were lowered to $2 million. (Important note: the cap of $2 million only applies if you are taking out a PPP loan for the second time. If you did not take out a PPP loan in the first round, you are still eligible under the $10 million limit, rather than $2 million.) The maximum borrowing amount is equal to 2.5 times the borrower’s average monthly payroll up to $2 million. If your business is in the foodservice and/or accommodations industries, the maximum borrowing amount for a second PPP is equal to 3.5 times the borrower’s average monthly payroll up to $2million. A fiscal year or calendar year can be used to calculate the max borrowing amount.
- Businesses With More Than One Location: Businesses with more than one physical location are eligible for funding provided each location has no more than 300 employees.
- 90-Day Waiting Period: Borrowers that received PPP funding within the last 90 days are eligible to apply for the second round of funding. However, the aggregate totals of borrowed funds from the first and second round may not exceed $10 million.
- Tax Deductions: Expenses paid for with PPP funds are tax-deductible.
- Businesses Affiliated With China: Any publically-traded company or entity affiliated with the People’s Republic of China, including Hong Kong, is ineligible to apply for the second round of PPP funds.
- New & Seasonal Businesses: New businesses and seasonal businesses are eligible for PPP funding provided they were in operations prior to February 15, 2020.
- Businesses In Bankruptcy: Businesses currently in bankruptcy may be eligible to receive PPP loans.
- Covered Period: The covered period can be any 8- or 24-week period with the end date selected by the borrower.
To be eligible for a PPP loan, the following conditions must be met:
- Must have been in operations prior to February 15, 2020
- All PPP funds received in the first round must be spent
- Businesses must have no more than 300 employees (this condition only applies to second-time PPP borrowers)
- Businesses must show that there was at least a 25% reduction in gross revenue in 2020 when compared to the same quarter in 2019 (this condition only applies to second-time PPP borrowers)
- Must confirm that loan funds are necessary to support the ongoing operations of the business
Finally, one of the biggest changes comes in terms of how funds are spent. To qualify for forgiveness in the first round of funding, businesses must have used funds for qualifying payroll costs, lease or mortgage expenses, or utilities. The Consolidated Appropriations Act adds a few additional qualifying costs. In addition to the qualifying costs covered during the first round of funding, the following expenses are also forgivable:
- Software & Cloud Computing: Funds can be spent on business software or cloud computing services that are used for payroll, inventory, human resources, supply tracking, or record keeping.
- Supplier Costs: Some supplier costs may qualify for loan forgiveness.
- Property Damage: Property damage that was incurred as a result of looting or civil unrest is a forgivable cost provided it wasn’t covered by property insurance or another form of compensation.
- Personal Protection Equipment: Personal protection equipment purchased for employees as a result of the COVID pandemic is a covered expense.
One last (but very important) thing to note here is that the new bill is open to interpretation, so changes may be forthcoming. New guidance from the SBA and/or the IRS may help clarify any issues that are unclear. Since it’s so early in the process, we’re only going with what we know so far. However, we will continue to provide updated coverage as new guidance is released.
When & How You Can Apply For PPP Round Two
It’s still early, so exact details on how and when you can apply for the second round of PPP funding is still up in the air. That doesn’t mean that we’re completely in the dark, though. The bill does state that the deadline for PPP funding is March 31, 2021, so we should expect more details very soon.
In the meantime, though, some lenders are already gearing up for the next round. Online lenders including Lendio, SmartBiz, Credibly, and BlueVine are gathering information and preparing for the second round of funding. In addition to providing more information on PPP loans, these lenders will also likely be opening up applications for eligible borrowers.
A number of banks, financial institutions, and online lenders will be providing PPP loans. We recommend doing your research (including reading our previous posts on the first round of PPP loans) to determine which lenders have the best processes in place to help you secure funds quickly and easily.