The latest COVID-19 relief package includes well over 5,000 pages of legalese and specific guidelines for how funds are to be used. In short, it’s a complicated document that provides billions of dollars in funding to a variety of programs and initiatives, including direct payments to qualifying Americans and a new round of PPP loans.
While the former program will automatically apply to those who qualify for stimulus checks, the PPP is a little different. Like the first round of PPP (Paycheck Protection Program) loans, businesses can apply for a direct government loan to help during the COVID-19 crisis.
So, what is a PPP loan? What — if anything — has changed with the second round of PPP loans? More importantly, what does the new PPP loan bill mean for your business? Read on to find out!
What is the Paycheck Protection Program?
The PPP is a multi-billion dollar loan program created by the U.S. government in response to the COVID-19 pandemic. In essence, the program offers loans to qualifying businesses, contractors, and even self-employed individuals affected by the crisis. The first PPP application window opened after the passage of the CARES Act in March of 2020. However, with the passage of the second economic stimulus relief bill, a new application window is set to open in January of 2021.
Who Qualifies for the Second PPP Loan?
The good news is that the second PPP loan has been expanded to reach even more people and businesses than the first round of loans. Even if you got a PPP loan the first time or if you applied and were denied a loan, you are still eligible to apply and receive a second loan. Generally speaking, you’re eligible to get the new PPP loan if you meet the following criteria:
- Sole proprietors, self-employed individuals, or independent contractors
- Some small news or marketing organizations, housing cooperatives, and non-profits
- Businesses with fewer than 300 employees
- Businesses that have seen a 25% reduction in quarterly revenue in at least one quarter of 2020
It’s also important to note that, if you received a PPP loan during the first round, you must have used all of the funds acquired to qualify for a second PPP loan. Though many businesses do qualify, this second round is aimed at smaller businesses with fewer employees. If your business has more than 300 employees, is affiliated with lobbying in any way, or does not otherwise qualify for a Small Business Administration (SBA) loan, then you will not qualify for a second PPP loan.
How Is the New PPP Loan Different From the Old One?
For the most part, the new PPP loan will function much the same as the old one. Applicants will have somewhere between 8 and 24 weeks to use the funds and at least 60% of every loan must go toward payroll expenses, while the rest can go toward eligible expenses like rent and utilities.
However, there are a few important changes to the application process. PPP loans are now capped at $2 million, compared to the maximum of $10 million the first time. As previously mentioned, the government wishes to assist smaller businesses with this second round of stimulus, so the maximum number of employees for a qualifying business has been dropped from 500 to 300.
Finally, the new legislation expands covered expenses to include software and equipment to meet social distancing and sanitation standards.
What to Consider Before You Apply
There is still a lot of uncertainty about the current rules surrounding the new PPP loans.
Companies that took out a PPP loan the first time are most likely not going to know if their loans will be forgiven until 2021. This can make it tricky to know if you need a second loan or not. In any case, here is what we do know about the PPP loan process for January of 2021:
- Every borrower can choose between 8 or 24 weeks to spend PPP funds
- After receiving your PPP loan, you will have 10 months to apply for loan forgiveness
- Once you have applied for loan forgiveness, the lender has 60 days to render a decision & request payment from SBA
- The SBA has 90 days to remit forgiveness payment and interest to the lender
- Once the forgiveness payment has been received, the lender can notify the borrower of the forgiven amount
- Deductions are allowed for eligible expenses paid with the proceeds of a Paycheck Protection Program (PPP) loan — and the loan can still be forgiven without reducing the borrower’s tax basis.
If you’d like to learn more about the new PPP loan and what it means for your business, we’d love to help! Reach out to the team at Crossroads Planning today!