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THE NEW RULES IF YOU NEED A PPP LOAN FOR YOUR SMALL BUSINESS
BY HUTCHINSON AND BLOODGOOD | JANUARY 7, 2020 | TAX TIPS
 
 
 
 


Congress recently passed, and President Trump signed, a new law providing additional relief for businesses and individuals during the COVID-19 pandemic. One item of interest for small business owners in the Consolidated Appropriations Act (CAA) is the opportunity to take out a second loan under the Paycheck Protection Program (PPP).

The basics
The CAA permits certain smaller businesses who received a PPP loan to take out a “PPP Second Draw Loan” of up to $2 million. To qualify, you must:

  • Employ no more than 300 employees per physical location,
  • Have used or will use the full amount of your first PPP loan, and
  • Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to use gross receipts from the fourth quarter of 2020.

Eligible entities include for-profit businesses (including those owned by sole proprietors), certain nonprofit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, independent contractors and small agricultural co-operatives.

Additional points
Here are some additional points to consider:

Loan terms. Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the year preceding the loan or the calendar year. However, borrowers in the hospitality or food services industries may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.

Gross receipts and simplified certification of revenue test. PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue loss requirement. Nonprofits and veterans’ organizations may use gross receipts to calculate their revenue loss standard.

Loan forgiveness. Like the first PPP loan, a PPP Second Draw Loan may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as rent, mortgage interest and utilities of 40%. Forgiveness of the loans isn’t included in income as cancellation of indebtedness income.

Application of exemption based on employee availability. The CAA extends current safe harbors on restoring full-time employees and salaries and wages. Specifically, it applies the rule of reducing loan forgiveness for a borrower reducing the number of employees retained and reducing employees’ salaries in excess of 25%.

Deductibility of expenses paid by PPP loans. The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted. The IRS eventually took the position that these expenses were nondeductible. The CAA, however, provides that expenses paid both from the proceeds of loans under the original PPP and PPP Second Draw Loans are deductible.

Further questions
Contact us with any questions you might have about PPP loans, including applying for a Second Draw Loan or availing yourself of forgiveness.
© 2021

 
 
 
 
 

HOW CAN WE HELP?

With the uncertainty of the situation surrounding coronavirus (COVID-19) continuing to evolve, we understand that it is affecting businesses and individuals in many different ways. 

At Hutchinson and Bloodgood, we value the relationships we have built with you. We will continue to be accessible so that we can serve and assist you while providing the level of attention that you deserve.

We will work alongside you throughout this ongoing situation to develop and build the optimal solutions for you.

Please contact us with your questions and concerns.

 
Disclaimer: This material has been prepared for informational purposes only. It is not intended as a substitute for speaking to your accountant, tax planner or financial planner. All information is provided “as is.” With change happening on a daily basis, we do not guarantee completeness, accuracy, timeliness or results obtained from the use of this information.
 
 
 
 
 
 
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