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A second round of PPP loans is coming (with some improvements)

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Congress recently passed a $ 900 billion COVID-19 relief bill that puts billions of dollars back into popular paycheck protection program (PPP) which ended in early August. Under PPP, small businesses can borrow money from private lenders without collateral, personal collateral, or fees. The loans do not have to be repaid as they are used to cover certain expenses, and they are an important lifeline for businesses facing financial difficulties during the coronavirus pandemic.

The bill requires the Small Business Administration (SBA) to draft regulations implementing the PPP no later than 10 days after signing the bill. Once the SBA releases the regulations, the program will officially reopen and run until March 31, 2021.

The legislation also ensures that business expenses paid with canceled PPP loans are tax deductible. It also specifies that PPP loans will not be included in taxable income.

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Many small businesses, nonprofits, and independent entrepreneurs may be eligible for the new round of PPP loans. Borrowers are also eligible for a loan even if they received funds in the first round of the PPP. There will be $ 284.5 billion in repayable PPP loan funds available for some borrowers who have already secured PPP loans and for other companies who missed the previous round.

The bill created “second draw” forgivable loans for “hardest hit” small businesses, certain nonprofits, housing co-ops, sole proprietorships, independent contractors and others. 300 employees or less. Eligible borrowers must show a loss of at least 25% of gross receipts in any quarter in 2020 compared to the same quarter in 2019.

First-time PPP borrowers will be subject to the program’s initial eligibility rules.

The maximum loan amount is $ 2 million for “second draw” loans. This is down from the maximum of $ 10 million that applied under the original rules of the CARES Act.

A borrower can qualify for a loan for up to 2.5 times their average monthly salary costs. Businesses in the accommodation and food service industries, such as restaurants and hotels, can receive up to 3½ times their average monthly wage cost.

As with the previous cycle of PPP loans, new loans can be written off entirely if they are spent for the appropriate purposes (mainly payroll) within the appropriate period. Currently, there are three PPP loan forgiveness requests, but these will likely be updated by the SBA once the program officially reopens.

To get a full discount, borrowers will need to spend at least 60% of the loan proceeds on payroll.

Borrowers can spend up to 40% on other qualifying expenses during the period covered. In addition to rent, mortgage interest and utilities, the list of eligible non-salary expenses has been expanded to include four new categories:

  • Covered operating expenses;
  • Covered property damage costs;
  • Supplier costs covered; and
  • Covered worker protection expenses.

Covered operating expenses include payments for any software, cloud computing, and other human resource or accounting needs.

Material damage costs covered consists of expenses related to property damage caused by public unrest in 2020 that are not covered by insurance.

Supplier costs covered are the expenses of a supplier under a contract, purchase order or order for goods in effect before a loan was taken out and which were essential to the borrower’s operations at the time the loan was taken out. expense has been made.

Covered expenses for worker protection include payments for personal protective equipment and adaptive investments to help a borrower comply with federal health and safety guidelines, or any equivalent state and local guidelines, related to COVID-19 from March 1, 2020 to the end of the national emergency declaration.

For any loan up to $ 150,000, the loan amount covered will be forfeited if the borrower submits an online or one-page paper form showing the loan amount, number of employees retained and loan amount spent. for the wage bill. Congress ordered the SBA to release this form within seven days of the new bill being enacted.

The bill will also allow borrowers to select the end date of their covered period during which they are required to spend a sufficient amount on qualifying expenses to receive a rebate. However, it must be more than eight weeks from the date of disbursement and not exceed 24 weeks.

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