PPP Loans for Hard-Hit Businesses: What you Need to Know About Round Two

Published on December 30, 2020 by Ryan Lauer, Matt Rosen, in COVID-19

President Trump has signed a $900 billion COVID relief bill with wide-ranging implications.  The stimulus package, which includes $166 billion earmarked for direct checks to individuals, also includes $325 billion reserved for small business relief.  For severely hindered businesses, a second round of PPP loans is the focal point of the bill.

What We Know

For businesses, the second round of PPP loans will be reserved for the hardest-hit borrowers.

Eligibility Requirements for a second PPP Loan

• 300 or fewer employees (if multiple locations, not more than 300 per physical location)
• Business must have a 25% gross receipts decline in any quarter in 2020 compared to the same quarter in 2019 (EIDL and PPP Loan proceeds from Round 1 are not counted in gross receipts).
• If the entity was not in operation until the second  half of 2019, businesses can compare any 2020 quarter to a 2019 quarter to meet the 25% gross receipts decline test
• Loan amounts will be 2.5x average monthly payroll costs, with a maximum loan amount of $2 million, which is a reduction from the $10 million cap on Round 1 loans.  Restaurants and hotels will be eligible for loan amounts of 3.5x average monthly payroll costs, subject to the same $2 million cap.
• The average monthly payroll costs can be calculated based on 2019 activity or the 12 months prior to the loan being made. Applicants should consider both periods to maximize their loan amount. Special rules are available for those entities not in business for the entire period or those entities that are seasonal

Forgiveness Eligibility

• Similar to the Round 1 loans, the Round 2 loans are eligible for forgiveness based on utilizing the funds on permitted uses (with at least 60% spent on payroll costs) and meeting requirements for maintaining wage and employment levels.
• The period to utilize the funds and be eligible for forgiveness (the ‘covered period’) is any period between 8 and 24 weeks.
• Covered expenses are expanded: Worker protection expenditures (PPE), supplier costs, operations expenditures and property damage costs (related to 2020 public disturbances not covered by insurance) are now eligible. This also applies to PPP Round 1 loans as well.
• The amount of loan forgiveness is no longer reduced by the amount of any EIDL advance that the borrower may have obtained (up to $10,000). We expect that borrowers who had EIDL advances and had already applied for forgiveness will have an opportunity to amend their forgiveness application.

Other Highlights

• Simplified loan forgiveness for loans of $150,000 or less. Businesses will need to sign and submit a one-page form and attest to complying with PPP requirements.  This includes PPP Round 1 loans as well.
• PPP deductibility- PPP loan proceeds are excluded as gross income for tax purposes. Further, deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. Applies to PPP Loan Rounds 1 and 2.
• $15 billion set aside for grants for independent entertainment businesses, such as music venues and movie theaters.  Applicants must have lost at least 25% of revenue to qualify and those that have lost 90% will be able to apply first within the first two weeks after the bill becomes law. If an entertainment business receives the grant, it is ineligible to receive a PPP loan.

What We Don’t Know

Currently, there exist many questions regarding the finer details of the second wave of loans.  It has yet to be determined what businesses will need to provide as support for the 25% gross receipts decline test and if cash or accrual accounting method will be required. While it’s expected that borrowers will be required to represent that “the uncertainty of current economic conditions make necessary the loan request to support the ongoing operations”, given the fact that eligible businesses will already have to support a significant revenue decline, the language or terms of the representation may change.

When We’ll Know It

The Small Business Administration (SBA) has 10 days to issue further guidance and detailed rules on the second round of PPP Loans.  It is expected they will release forms and instructions along with FAQs at that time.  Additionally, the SBA has 24 days to create an application for the simplified forgiveness (loans under $150,000).

What to Do Now

Does your business meet the requirements for a second round of PPP loans or the entertainment  venue grants?  While applications cannot be submitted now, starting the conversation now and determining your eligibility is essential to being ready when the application process is open.

Proactively communicate to your lender or banker to confirm if they are participating in this round of PPP loans so you are prepared when the applications are ready.

Let’s Talk

Do you have further questions about PPP expense deductibility? Please contact us for PPP loan application and forgiveness consulting or for any other issues related to the COVID Relief Bills. We’d be glad to assist you.

Barnes Dennig COVID-19 Advisory Team

• Cheryl Ganim
• Andy Bertke
• Matt Rosen
• Ryan Lauer
• Nick Pennekamp

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