Congress passed new funding for the Paycheck Protection Program. The COVID-relief funding is aimed at employment retention for small businesses. The Paycheck Protection Program provides small business the resources they need to maintain their payroll, rehire laid-off workers, and continue operation during the COVID-19 pandemic. As a reminder, the Program is a loan, however, fully forgivable if the funds are used for certain eligible expenses during an 8- or 24-week covered period. Any portion of the loan not forgiven carries a 1 percent interest rate.
Importantly, the new law clarifies that expenses paid with forgiven loan funds are tax-deductible, overriding the previous IRS guidance disallowing deductions for these eligible expenses and providing much needed clarity on this issue.
Previously, the government simplified the forgiveness application process for businesses that received less than $50,000. However, the new legislation increased the limit on the simplified forgiveness process to $150,000. These businesses will only need to submit a brief description of how much loan money was spent on payroll, and how many employees were retained during the covered period.
If you have already received forgiveness for your Paycheck Protection Program loan, none of the new provisions apply to you, but you may be eligible for a second round of funding called a “second draw.” Here are the requirements:
- Second draw applicants must demonstrate at least a 25 percent drop in revenues from the fourth quarter of 2019 to the same period of 2020.
- Applicants for the new funding have between 8 and 24 weeks to use the funds, with at least 60 percent going toward payroll while the rest of the funding must go toward eligible expenses like rent and utilities. The new bill expands what is a “covered expense” for forgiveness purposes and includes expenses for cloud computing and remote-work software, equipment for government-mandated sanitation, and social distancing.
- Restaurants and food businesses can receive more, as the funds are calculated by 3.5 times their average monthly payroll. Other loan applicants may receive 2.5 times their average monthly payroll.
- New loans are capped at $2 million, compared to $10 million before. Applicants must have less than 300 employees, instead of up to 500.
- Second draw applicants must have previously spent their original Program funding or plan to use their funding.
If you have any questions regarding your eligibility for second draw funding under the Paycheck Protection Program, please reach out to the Eldridge Brooks team.
Morgan R. Johnson