Insights into the world of small business lending and development

Guide to understanding what’s in the new federal relief package for small businesses

Congress approved a new federal relief package to help struggling small businesses weather the coronavirus pandemic, putting an end to months of ongoing negotiations and congressional inaction. Below is a summary of the key pieces of the legislation that can support the recovery of small businesses.

Latest changes to PPP

White House announced new changes to the Paycheck Protection Program (PPP):

  • Starting Wednesday, February 24, only businesses with fewer than 20 employees will be able to apply for loans. This period will last a total of two weeks. ​
  • Revise and amend the PPP loan calculation formula for sole-proprietors, independent contractors and self-employed applicants to ensure they receive more relief.​
    • Establishes a $1 billion set aside for businesses in this category without employees located in low- and medium-income areas.
  • Expands PPP eligibility to small business owners with non-fraud felony convictions​.
  • Allows firm owners who are delinquent on their federal student loans to apply​.
  • Expands PPP eligibility to non-citizen small business owners who are lawful U.S. residents.

What’s in the new stimulus package?

  • Paycheck Protection Program (PPP) borrowers can apply for a "second round" of PPP loans (depending on eligibility).
  • There are additional expenses you can include as part of your non-payroll costs for the loan forgiveness program.
  • The 60/40 loan terms still apply for both new and second-time PPP borrowers.

PPP: first-time borrowers

  • $284.5 billion total amount authorized for PPP.
  • First-time PPP borrowers are eligible to apply.
  • PPP is now open to first-time borrowers and ‘second draw’ borrowers
    • Nonprofit community development institutions will solely be accepting applications initially.
  • The covered period is extended through March 31, 2021.
  • 60% payroll rule still applies.

PPP “second draw”

  • If you previously applied for and received a PPP loan, you are eligible to apply for a second PPP loan.
  • Maximum loan amount: $2 million.
  • Businesses must have fewer than 300 employees per location.
  • Businesses must have used the entirety of the first PPP loan.
  • Businesses must demonstrate a 25% reduction in revenue for a quarter this year compared to the same quarter last year.

PPP Loan forgiveness

  • For loans of $150,000 and less, a borrower can:
    • Sign and submit to the lender the SBA-approved form
    • That one-page form will only require the borrower to provide:
      • a description of the number of employees the borrower retained because of the loan 
      • and the estimated amount of the covered loan spent on payroll costs + the total loan amount
    • It will also require you to attest that you accurately provided the required certification and that you complied with the PPP loan requirements (60/40 rule).
  • Note: You must retain all employment records for 4 years and non-payroll records for 3 years after submitting your forgiveness application in the event of an audit. 

Taxes and deductibility of forgiven PPP expenses​

  • Expenses made with forgiven PPP loan proceeds can be deducted from your taxes.​
    • PPP forgiven funds, emergency EIDL grants, targeted EIDL advances, certain loan repayment assistance and grants for shuttered venues are not taxable as income and deductions are allowed for otherwise deductible expenses paid with the proceeds of this small business assistance.​
  • The gross income a business is required to report will not include any PPP loan amount that is forgiven.​

Eligible expenses for PPP loan forgiveness

  • Here are some additional expenses eligible for forgiveness that were not covered previously:
    • Covered operations expenditures: Payment for any software, cloud computing, and other human resources and accounting needs.
    • Covered property damage costs: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
    • Covered supplier costs: Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations.
    • Covered worker protection expenditure: Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19.
  • Previous PPP loan recipients can also claim these costs as covered expenses, pending the 60% payroll rule and as long as the loan has not already been forgiven.

Other PPP considerations

  • This legislation undoes a IRS ruling regarding the tax deductibility of PPP expenses, and clarifies that qualified expenses made with forgiven PPP loan proceeds can be deducted from your taxes. The legislation states that small business assistance—including PPP forgiven funds, emergency EIDL grants, Targeted EIDL Advances, certain loan repayment assistance, and grants for shuttered venues—will not be taxable as income and clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of this small business assistance. Note: States vary on their tax treatment of PPP, forgiveness and EIDL. 
  • The EIDL Advance will not be reduced from your forgivable PPP amount. This applies to existing borrowers as well, though unclear what the process will be. 
  • All businesses obtaining their first or “second draw” PPP must have been in business as of Feb. 15, 2020. 
  • Restaurants and other food and accommodation businesses can qualify for 3.5x monthly expenses for PPP second draw. 
  • Clarifies covered period will be between 8 and 24 weeks.
  • Clarifies other group insurance (such as vision, dental) are eligible PPP expenses.
  • Clarifies rules for seasonal businesses. 

Emergency Injury Disaster Loan Advances

  • Congress has allocated an additional $20 billion for EIDL advances.
  • You may be in line to receive an EIDL advance if:
    • Your located in a low-income community and received an advance of less than $10,000
    • Your located in a low-income community and applied for an advance, but received no funds due to lack of available program
    • Note: Applicants do not need to take any action at this time. SBA will reach out to those who qualify.
  • The new stimulus repeals the requirement of the CARES Act that advance amount be deducted from PPP forgiveness amount.

Other Small Business Administration debt relief 

  • All borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of deferral on principal and interest, starting in February 2021. 
  • Underserved borrowers, namely the smallest and hardest-hit, will receive an additional five months (eight total) of relief.
  • SBA payments of P&I on the first 6 months of newly approved loans will resume for all loans approved between February 1 and September 30, 2021, also capped at $9,000 per month.
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