January 5, 2021,

Payroll Protection Program: Round 2

What Small Businesses Need to Know

After a lot of political gamesmanship and delay, the Congress and the President finally approved another stimulus bill the Consolidated Appropriations Act (CAA). The bill is 5,500 pages and has an estimated cost of $900 trillion. Included in it was the renewal of the Paycheck Protection Program (PPP), that was created as part of the original stimulus bill, the CARES Act, back in March. I am not going to dive into all aspects of the bill, but I will focus on what I am calling PPP2 and encourage you to invest some time to see if your business may benefit.


It is hard to fathom the size of the stimulus bill, since the allocated funds are enormous, but the economic challenges small businesses are facing are also enormous. In total the CAA makes $325 billion of aid available to small businesses. PPP2 has special provisions to help small businesses, nonprofits, restaurants, bars and performance venues since many of them were left out of the original PPP.  You may have heard about the administrative issues with the original PPP but the new bill corrects some of the problems, including certain aspects for loan forgiveness and it has set up an expedited process for small businesses seeking less than $150,000.

Who is eligible?

PPP2 loans will be available to first-time qualified borrowers and for businesses that previously received a PPP loan. The amount of a loan has been reduced to a maximum of $2 million and the following eligibility criteria has been established:

  • Your business has fewer than 300 employees, special provisions for those businesses with 10 or fewer employees
  • If you were able to get a PPP loan from the original program, it must be fully dispersed.
  • Show a 25% gross revenue decline in the 1st, 2ndor 3rd quarter of 2020 compared with the same quarter in 2019.

PPP2 expands the type of business that qualifies by making the forgivable loans available to nonprofit organizations, local newspapers, radio stations, entertainment venues, sole proprietors, independent contractors, and eligible self-employed individuals. Special provisions have been included to provide additional assistance to bars and restaurants.


What can I use the money for?

In the original PPP, 60% must be used for payroll and up to 40%the costs can be used for, rent, covered mortgage interest, and utilities. In PPP2, there are some changes to allow additional expenses but 60% still has to go towards salaries but the other 40% usage has been expanded to include software, cloud computing, PPE, and accounting needs. The PPP2 borrower can also spend loan proceeds on certain group insurance benefits, including group life, disability, vision, or dental insurance.


How much can I get?

PPP2 borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs from 2019 up to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (Accommodation and Food Services) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.


There is a simplified forgiveness application process for loans of $150,000 or less. The borrower will receive forgiveness if they sign and submit to the lender a certification that is not more than one page in length that describes the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.


Tax Benefits

While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses paid with PPP funds would be deductible. The PPP2 clarifies this and specifies that business expenses paid with forgiven PPP loans are tax-deductible.

You may have heard about the “Three Martini Lunch Deduction” which allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. The idea is to give a businessperson an added incentive to visit a restaurant.


The bill also extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020 and expires at the end of 2022.


How do I get started?.

Talk to your accountant to find out how the PPP2 works for your business. Contact a participating financial institution or your to discuss the process, they should be able to take application by the middle of January. Do not delay, move quickly. It might sound crazy but $325 billion will go quickly. The CAA provides increased PPP funding and eligibility to those small businesses that have been hit hard by the impacts of COVID-19.


However, with the increased funding and eligibility comes added complexity. Be prepared to invest time and have patience as you considering applying for a forgivable PPP loan. It can provide a significant benefit to your business and help build a bridge until economic conditions are better and COVID-19 is under control.


If you would like more information about the second round of the Payroll Protection Program, contact Mark Kleinschmidt at mark@aaaccc.org