PPP Round 2: Some Businesses May be Eligible for a “Second Draw” on PPP Loans

PPP Round 2: Some Businesses May be Eligible for a “Second Draw” on PPP Loans

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”) became law when it was signed by President Trump on December 27, 2020.  The Act provides numerous benefits to qualifying small businesses.

Second Draw PPP Loans.  Businesses that were especially hard-hit by the coronavirus pandemic may be eligible for a second PPP loan.  Most qualifying small businesses will be eligible for loans up to 2.5 times their average monthly payroll costs, up to a maximum of $2,000,000.  To be eligible, a business must: (1) have received an original PPP loan; (2) employ 300 or fewer employees (subject to a few exceptions); and (3) be able to demonstrate at least a 25% reduction in gross receipts during any calendar quarter of 2020 as compared to the same quarter in 2019.  In addition, the business must have used (or be expected to have used) all of its initial PPP loan before receiving the second PPP loan.

Expanded Eligible Expenditures.  PPP funds must be spent on certain categories of expenses in order to be eligible for forgiveness.  The Act adds four new categories of expenditures to that list.  They are:

1. Covered Operational Expenses – payments for any business software or cloud computing service that facilities business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses);
2. Covered Property Damage Costs – costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
3. Covered Supplier Costs – expenditures made to a supplier for goods that are essential to the operation of the PPP borrower at the time at which the expenditure is made, and is made pursuant to a contract, or order in effect any time before the applicable covered period or with respect to perishable goods, in effect before or at any time during the covered period); and
4. Covered Worker Protection Expenses – operating or capital expenditure to facilitate the adaptation of business activities to comply with requirements established or guidance issued by the DHS, CDC, OSHA, or equivalent state or local guidance. Examples of eligible expenses include amounts spent to purchase, maintain, or renovate indoor, outdoor, and drive-through business space, as well as personal protective equipment).

The expanded categories of expenditures apply to both initial PPP loans and the second draw PPP loans.

Forgiveness Process.  The Act provides for a simple, one-page, forgiveness application for PPP borrowers that borrowed $150,000 or less.

Tax Treatment.  The Act confirms that (1) forgiven loans and EIDL grants will not be considered taxable income, and (2) deductible expenses paid for with forgiven PPP proceeds or EIDL funds will remain tax deductible.

EIDL Grant Treatment.  The Act also eliminates the requirement that EIDL grants reduce PPP forgiveness amounts;  PPP borrowers will be eligible for full forgiveness even if they received and EIDL grant.

If you have questions regarding the Act or the eligibility of your business, please contact SS+D for assistance.