At the end of 2020, Congress passed, and President Trump signed, a new law that provides for additional relief related to the coronavirus (COVID-19) pandemic. The law allows for businesses to deduct ordinary and necessary expenses paid from the proceeds of PPP loans for Federal tax purposes. The law also includes a second draw of Paycheck Protection Program (PPP) loans.
Here’s what we know so far:
Key Criteria for Second Draw PPP Loans:
1 – Eligibility criteria:
- 300 or less employees
- Business had to be in operation as of 2/15/2020
- Has used or will use the full amount of the first PPP loan
- 25% reduction in gross receipts from any quarter in 2020 compared to the same quarter in 2019
2 – Loan Terms:
- Your loan amount will be based on the lessor of 2.5x your average monthly payroll costs or the estimated forgivable costs, with a $2 million maximum
- Average monthly payroll costs can be based on the prior 12 months or 2019
- For accommodation and food service entities only, the multiple in the above formula is 3.5
- 5 year term with a 1% interest rate
3 – Eligible Forgivable Expenses
- 60% of the loan proceeds will need to be spent on payroll
- Eligible other costs
- Business mortgage interest payments
- Business rent or lease payments
- Business utility payments
- Payments for any software, cloud computing, and other human resources/accounting needs
- Payments for property damage that occurred in 2020 and were not covered by insurance
- Supplier costs for expenses to a supplier for goods that were in effect prior to taking out the loan and are essential to the Business’ operations
- Payments for personal protective equipment or adaptive measures to help the Business comply with federal, state, or local guidance related to COVID-19
4 – Covered Period
- Borrower can elect a covered period of 8-24 weeks
Timing: Second draws will be available through March 31, 2021, subject to funds availability ($284 billion has been appropriated by Congress to support additional PPP loans).
If you have any questions please don’t hesitate to reach out to anyone on our team and we will be happy to assist you
This article is intended for educational purposes only and is not a substitute for obtaining competent accounting, tax, legal, or financial advice from a certified public accountant, attorney, or other business advisors. You should not act upon any of the information in this article without first seeking qualified professional guidance from your business advisors on your specific circumstances. The information presented should not be construed as advice or guidance from BFBA.