Paycheck Protection Program (PPP) and The Second Draw

In this article we will be reviewing the Paycheck Protection Program (PPP) and The Second Draw, and we answer the questions of:

• What is the Paycheck Protection Program (PPP)?
• What Are the Eligible Expenses That the PPP Funds Can Be Applied to?
• What Businesses Are Able to Apply for a PPP Loan?
• What Provisions Has Congress Enacted for Very Small and Minority Businesses?
• What if I received a PPP Loan from the Original Program, Can I Apply Again?
• How Much Is a Business Able to Receive from a PPP Loan?
• Are the Expenses Paid With PPP Funds Tax Deductible?
• How Can My Business Apply For a PPP Loan?
• How Soon Can Funds Be Received from an Approved PPP Loan?
• What Are The Repayment Terms on The PPP Loans?

During the Covid-19 crisis many small businesses have struggled with reduced incomes and lower revenues. To help offset the hardships small businesses have faced Congress has provided additional funding to the Paycheck Protection Program.

What is the Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) is a small interest loan that is available to small businesses. The loans are designed to help small businesses stay afloat through these difficult times. If used appropriately and the employers meet the necessary criteria, the PPP loans may be eligible for forgiveness. These loans are backed, administrated, and guaranteed by the Small Business Administration.  

What Businesses are Eligible for the PPP Loans?

Under the CARES Act, small businesses consisting of 500 employees or less that qualify under the Small Business Association guidelines are eligible to apply for PPP loans. Under the second draw program, that business size is reduced to 300 employees or less.

What Are the Eligible Expenses That the PPP Funds Can Be Applied To?

As like the original PPP funds, the funds can be used for employee payroll expenses, including health insurance and retirement. The funds can also be used to cover rental payments (or mortgage interest payments) and utilities so long as the expenses do not exceed the Congressional thresholds.

With the new legislation Congress added four additionally types of covered operations expenditures. First, Congress has expended the use of funds to include covered operating expenses which includes business software or cloud computing services that assists business operations, product or service delivery, processing, payment, or tracking of payroll expenses, human resources, sales and billing functions or accounting or track of supplies inventory, records, and expenses.

Second, Congress is allowing these funds to be applied to covered property damage costs. Covered costs are expenses related to property damage and vandalism or looting stemming from the public disturbances that occurred during 2020 that were not covered by insurance or other compensation.

Third, the funds can be uses for covered supplier costs which are expenditures to a supplier of goods that are essential to the operations of the entity at the time at which the expenditure is made and is made pursuant to a contract, order, or purchase order.

Finally, the funds can be used any covered worker protection expenditures.  any payment on any covered operations expenditure, any payment on any covered property damage cost, any payment on any covered supplier cost, any payment on any covered worker protection expenditure.

What Businesses Are Able to Apply for a second PPP Loan draw?

Businesses with less than 301 employees and can show a 30% decline in revenue in any quarter between the same quarters in 2019 and 2020.

There is expanded eligibility for live venues, community lending institutions, and restaurants that was not available under the original PPP loans.

What Provisions Has Congress Enacted for Very Small and Minority Businesses?

Congress has set aside $15 billion to businesses that do not have more than 10 employees or are seeking a loan of less than $250,000.00 and the recipient that is located in a neighborhood that is a low-income or moderate-income neighborhood. This provision was enacted for the purpose of ensuring these very small and eligible low-income businesses are not blocked out of the PPP loans as many were on the first round of the PPP loans.

What if I received a PPP Loan from the Original Program, Can I Apply Again?

Yes. Eligible businesses are able to apply for a second loan draw from the PPP funds if they meet the requisite requirements. In order to qualify, the business is requesting additional funds must have exhausted the funds originally provided to them, have less than 301 employees and that have sustained a 30% revenue loss in any quarter of 2020.

How Much Is a Business Able to Receive from a PPP Loan?

On the second draw of the PPP funds, is capped at 2.5 times the average total monthly payroll costs plus up to $50,000.00 for covered worker protection expenditures beginning March 1, 2020 and ending on the date of enactment, the maximum amount that can be received is $2 million.

Are the Expenses Paid with PPP Funds Tax Deductible?

Yes, previously, the expenses paid with PPP were not able to be deducted for tax purposes. With the new legislation, Congress has specifically authorized that any appropriately deductible expenditures paid for with PPP funds are still deductible.

How Can My Business Apply for a PPP Loan?

Congress has authorized that any lender currently authorized by the Small Business Association (SBA) may lend the PPP funds. Additionally, the SBA is expanding eligible lenders that fill out the appropriate applications. The lending institution that you visit will be able to inform you if they are authorized to execute PPP loans. If you have previously been working with a lending institution for other business needs, they are likely an eligible lender for the PPP funds.

How Soon Can Funds Be Received from an Approved PPP Loan?

The legislation requires that the funds begin to be distributed no later than ten days from being authorized. This time period begins once the legislation is signed into law by the President. It is important to apply for the PPP loan as soon as you are eligible to as the funds are limited and if they are exhausted, no additional applications can be approved.

What Are The Repayment Terms on The PPP Loans?

The PPP loans may be forgiven in their entirety so long as the funds are used on the eligible and approved expenses discussed above. In addition, using the funds in approved manners, there cannot be any layoffs or employer driven work force reductions, or a portion of the funds may not be eligible for forgiveness. Any unforgiven portions of these loans will need to be repaid according to the terms of contract that is entered at the time the loan is issued.