The Consolidated Appropriations Act passed in late December revived and expanded the Paycheck Protection Program (PPP). Established under the CARES Act, PPP furnished loans to businesses to pay employee wages and other necessary expenses (rent, utilities, and mortgage interest). If the business maintained its level of employees and spent the loan proceeds on the approved items, the loan would be forgiven. The application process was simple, and no personal guarantees were required by the lender. The original PPP expired on August 8, 2020.
The new law enacted in late December reestablishes the program with $284 billion in new funding. New loans will be made until March 31, 2021 or until the funding is exhausted. Under the new law, a business that did not receive a PPP loan originally can apply now. More importantly though, businesses that had a PPP loan in 2020 are eligible to apply for another one, labeled a “Second-Draw” loan. Candidates for second-draw loans must meet the following criteria:
- Show a 25% decline in gross revenue in any quarter of 2020 compared to the same quarter of 2019, OR a 25% decline in annual gross revenue in 2020 compared to 2019
- Have used all their initial PPP loan
- Have 300 or fewer employees
Businesses that meet these criteria may borrow up to 2.5 times their average monthly payroll for 2019 or 2020. Certain businesses in the food service and hospitality industries can borrow 3.5 times their average monthly payroll costs. Loans are limited to $2 million.
The new law also expanded the list of eligible expenses for PPP loans to include some operations expenses, uninsured property damage resulting from public disturbances, certain supplier costs, and expenditures to comply with health and public safety guidelines (PPE, plexiglass screens, etc.)
The PPP loan proceeds are not taxable when forgiven, and the expenses funded by the loan are 100% deductible, thanks to the new law. The program offers a lifeline to businesses suffering economic damage from the pandemic. If you think you may qualify for an original or second-draw PPP loan, please contact your advisor at GranthamPoole. We have a team of professionals ready to help you.
Stephanie B. Smith, CPA, CFF
Stephanie B. Smith is a member of GranthamPoole PLLC and a recognized leader in the fields of business valuation and litigation support. She has also written, taught, and spoken on many topics in the area over the years and has served as a technical advisor and testifying expert in numerous cases. Please contact Stephanie at ssmith@granthampoole.com or 601-499-2400. CPA License # 3657
***The above does not represent tax advice. Each situation is fact-dependent, and you should seek the advice of a competent advisor. GranthamPoole PLLC is a provider of tax, accounting, advisory and strategic services, partnering with clients across a broad spectrum of industries and sizes.