As part of the 2021 Consolidated Appropriations Act passed on December 27, 2020, the Paycheck Protection Program loans (PPP) were allocated $285 billion for another round of loans, now commonly referred to as PPP2. On January 11, 2021, the portal opened to select community lending institutions. The portals for all other banks should be opened on January 19, 2021. The PPP2 loans will be available through March 31, 2021, via qualified lenders or until funding runs out.
As business owners look for subsequent government aid, key changes in the regulatory landscape could significantly impact cash flow planning. Here, we outlined a few of the updates most relevant to previous and prospective borrowers.
Prioritizing Underserved Populations + Hardest Hit Businesses
To help reach at-risk businesses, the Small Business Administration (SBA) provided guidance for minority, underserved, veteran, and women-owned companies. The first two days of PPP2 loans were available only from select community financial institutions that prioritized small, rural, or minority businesses. Additionally, PPP2 set aside $25 billion for organizations with ten or fewer employees or loans less than $250,000 in low-income areas.
PPP2 loans are intended for the businesses hit hardest by the pandemic. Borrowers with 300 or fewer employees and a demonstrated 25% decline in gross receipts in any 2020 quarter compared to the same quarter in 2019 are eligible to receive another round of funding. The gross receipts include all revenue in all forms, including sales, interest, rents, royalties, fees, or commissions. Economic Injury and Disaster Relief Loans (EIDL) and PPP loans do not count toward gross receipts.
If a business did not receive an original PPP loan, the business will not need to prove the 25% decline of receipts and may still have up to 500 employees. The decline of receipts and 300 limit is for Second Draw loans (PPP2) only. Any businesses that did not receive a loan already can refer to our FAQs on PPP and apply for a First Draw PPP Loan, up to $10 million.
Notable Updates for PPP2
For those that received funding during the first PPP roll-out, the loan terms of PPP2 are generally the same. The changes made to PPP2 were made in the spirit of accessibility, including making the loans tax-deductible. The new PPP2 loans are capped at $2 million, or 2.5 times the average monthly payroll costs. Specific service industries, like restaurants and hotels, are eligible to receive 3.5 times the average monthly payroll costs.
Loan recipients must spend at least 60% of the loan proceeds on payroll costs, but other operational expenses are still eligible for forgiveness. Borrowers may elect to use a covered period anywhere between 8 weeks and 24 weeks. Borrowers will have needed to have fully used the original PPP loan before applying for the PPP2.
No additional documentation is required to substantiate payroll costs if the borrower uses the same lender and uses the 2019 calendar year to determine the loan amount. For those seeking more than $150,000, annual tax forms or quarterly financial statements may be required to demonstrate revenue decline.
The spirit of the PPP is to reach as many organizations as possible that continue to see reduced business due to the pandemic. Of course, there are a few instances that disqualify a company from receiving PPP or PPP2 funding:
- Any permanently closed business or entity
- Businesses not in operation on February 15, 2020
- Shuttered Venue Operator Grants recipients
- Publically-traded businesses
- Lobbying organizations
- Household employers
- Bankrupt entities
Interplay with Employee Retention Credit
When it is time to apply for forgiveness for a PPP2 loan, a business should also consider the availability of the Employee Retention Credit. For the hardest-hit businesses, both stimulus options will be available, but careful analysis should be done to get the most benefit.
Understanding the PPP with Aldrich
The entire Aldrich team is monitoring the PPP updates closely. We’ll be updating our PPP Resource Center diligently to keep you apprised of new requirements and guidance as they are released. If you have any questions about loan forgiveness or additional relief for your business, reach out to your Aldrich Advisor.
This article was written with the most current information as of January 19, 2021. Please check back for future updates.
Meet the Author
Sara Northcutt, CPA
Aldrich CPAs + Advisors LLP
Sara Northcutt joined the firm in 2005 and has more than a decade of experience working on a wide range of clients, including financial lending, private equity, real estate, and other closely held businesses. Sara specializes in multi-state tax compliance. Sara received her Bachelor of Arts degree from Vanguard University of Southern California and did her…
- Closely-held businesses
- Certified Public Accountant
- Strategic tax planning and compliance