As 2020 came to an end, Congress offered small businesses a second helping hand by passing the Consolidated Appropriations Act, 2021. This new legislation expands the CARES Act to help small business owners in several ways, including;
The Small Business Administration (SBA) and Treasury department are slated to roll out detailed guidance over the next few weeks, but here’s a sneak preview of what’s on the way.
The window for PPP loan applications originally closed on August 8, 2020, but the new legislation will make it possible for businesses to secure a new loan until March 31, 2021. If this is their first PPP loan, qualified businesses can apply for a loan up to $10 million, based on their payroll expenses. Here’s a little more about how PPP loans work.
The new application form is now available from the SBA, and businesses can apply by submitting this form to an SBA-approved lender.
Can businesses get a second PPP loan? The answer is finally yes!
Businesses that received a PPP loan previously are now eligible for a second loan of up to $2 million if they meet the following conditions:
The SBA is beginning to issue more specific guidance about the application process, loan forgiveness, and eligibility, but there are still a few more details to fill in. Here’s what we know so far:
In the legislation, $25 billion of PPP loans are set aside specifically for borrowers in low income areas that either have up to 10 employees or request loans of less than $250,000.
In addition to for-profit businesses and 501(c)(3) nonprofits that were in operation before February 15, 2020, eligibility for the new round of PPP loans also includes:
However, publicly traded companies and businesses who receive a Shuttered Venue Operator Grant are both ineligible for this new round of PPP loans, as well as any entities listed in 13 C.F.R. 120.110 that aren’t included in the list above.
A new loan application form is now available. The application process should be similar to the first round of PPP loans, but a few changes have been made to streamline some of the required documentation:
To have its PPP loan forgiven, a small business must spend at least 60% of its loan on payroll expenses, and the other 40% can come from specified non-payroll expenses, like rent, mortgage, and utilities. Under the new legislation, the list of eligible non-payroll expenses has been expanded to include expenses related to:
The “covered period” when funds from a PPP loan must be spent is still the borrower’s choice of 8 or 24 weeks from either the origination of the loan or the beginning of the first pay period after the loan is received. However, the new legislation extends the final date by which the original loans must be spent until March 31, 2021. Previously, funds had to be spent by the end of 2020.
Any new PPP loans will have the same 8 or 24 week covered period. See a detailed description of how the covered period works.
For both outstanding PPP loans and second draw PPP loans that are yet to be issued, businesses that borrow less than $150,000 can apply for forgiveness by filling out a simplified one-page certification form, which includes:
The forgiveness application form will be available from the SBA by the end of the third week of January, and the SBA is responsible for creating an audit plan by mid-February. Despite the simplified forgiveness process, borrowers should still retain employment records for four years.
The new legislation overrides previous IRS and Treasury Department guidance that did not allow the deduction of any qualified expenses that were associated with a forgiven PPP loan. That means borrowers now will receive additional tax relief because the expenses that their now-forgiven loan covered may also be deducted as a business expense.
Under the original CARES Act, Employee Retention Credits (ERC) were only available to businesses that were wholly shut down, partially shut down, or losing 50% or more revenue compared to the same quarter in 2019. A business that received a PPP loan was also ineligible for ERC.
The new legislation expands eligibility for employee retention tax credits in three ways:
The amount of the tax credit has also been increased, and the period of eligibility now includes January 1, 2021 through the end of June. More details are expected from the SBA and Treasury soon.
As the SBA and Treasury issue additional guidance, we will update this article and all the materials in our Small Business COVID-19 Resource Center. Businesses who use OnPay for payroll and HR will also have access to tools that streamline the process of applying for PPP loans, taking advantage of employee retention tax credits, and calculating payroll costs. Learn more about how we can help.