Both the U.S. Senate and House of Representatives overwhelmingly passed a $900 billion COVID-19 relief bill that provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses. President Trump signed the bill into law on December 27, 2020.
The legislation, the Consolidated Appropriations Act, 2021, also ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans, provides fresh PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses facing severe revenue reductions the opportunity to apply for a second loan.
Key provisions in the bill include:
- $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help businesses in low-income and minority communities.
- $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent
- $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26, 2020 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
- $25 billion in emergency rental aid and an extension of the national eviction moratorium through January 31, 2021
- $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak
- $82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission and $10 billion in child care assistance
- $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments
- $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits
- $7 billion for broadband expansion
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.
Small Business Aid: Paycheck Protection Program (PPP2)
The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences. The following is a high-level view of the PPP provisions:
PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
- You must have started your business prior to February 15, 2020
- Have 300 or fewer employees
- Have used or will use the full amount of their first PPP loan
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
- Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020
PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to February 15, 2020.
PPP2 will also permit first-time borrowers from the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
- Sole proprietors, independent contractors, and eligible self-employed individuals
- Not-for-profits, including churches
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location
The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
PPP Loan Terms:
As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
- Covered operating costs such as software and cloud computing services and accounting needs
- All PPP expenses are now considered tax-deductible
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August. Forgiven loans will not be counted as taxable income.
How Much Can You Borrow?
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
The New COVID-19 Relief Bill Also:
- Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of 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. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount
- Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders
How Can You Apply?
The application process opened on Monday, January 11, 2021. If you are considering applying for this second round of PPP relief, please don't wait. Similar to the first round of PPP, there will be heavy demand for this program and funds will be allocated quickly.
To help underserved businesses, including minority-, women- and veteran-owned businesses, only loan applications from community financial institutions will be accepted for the first two days when the PPP loan portal initially reopens.
Although the program is being administered by the Small Business Administration, the loans themselves will be disbursed by the nation’s banks, credit unions, and other federally approved lenders. That means small business owners need to apply for funding with their local and/or existing banking partner.
The SBA provides a lender match portal, where borrowers can complete a brief questionnaire and then get matched with an approved lender within two days. The SBA will initially only lend through smaller community financial institutions before opening the loans up to all lenders.