New PPP Laws & “Second Draw” PPP Loans

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The Consolidated Appropriations Act of 2021 revised the PPP loan laws – and provided a new round of funding for PPP loans in 2021.  In early January, the SBA released two Interim Final Rules implementing this new law.  Click here and here to see the Interim Final Rules.  You may submit comments on the Interim Final Rules here.

Click here for PPP Guidance for Accessing Capital for Minority, Underserved, Veteran, and Women-owned Business Concerns.

Highlights of the 2021 PPP law changes are provided below:

For all PPP loans

Congress reversed previous guidance released by the IRS – all expenses paid with PPP loan proceeds will now be tax-deductible.  This is true even if your PPP loan is forgiven.  This new provision of the law applies to both existing and future PPP loans.

There will be a new, even more simplified loan forgiveness application for PPP loans up to $150,000.  This will be the 4th forgiveness application form, in case you’ve been keeping track.

Contrary to the previous law, EIDL grants no longer reduce PPP loan forgiveness (see footnotes 78 and 81 and page 60, here).  If you have already submitted your loan forgiveness application with the EIDL reduction (usually $10,000) you can amend your loan forgiveness application.  Check with your lender for details.

The kinds of payroll costs used to qualify for a PPP loan have been expanded.  Now, in addition to base pay costs, a business can now include employer-paid group insurance premiums for life, disability, vision and dental; retirement contributions; and state and local taxes on employee compensation (see page 36, here).  Previously, these costs were used to calculate loan forgiveness but not used to determine whether a business was eligible for a PPP loan.  Borrowers can amend their PPP loan application to include these new costs and/or can submit a new PPP loan application, for the new PPP “Second Draw” loans (see discussion below).

PPP “Second Draw” loans:

A second round of PPP loans up to $2 million will be available between 1/11/2021 and 3/31/2021 for qualifying borrowers.  The week of January 11, the loans will be available only through community financial institutions.  The PPP will open to all participating lenders “shortly thereafter.”

Loans will be available to businesses with 300 or fewer employees. (See pages 9 and 10 of the Interim Rule for specific guidance relating to hotels, restaurants, religious, and news organizations.)  To qualify, a business must have a year-over-year decline in gross receipts of 25% or more between any one quarter of 2020 compared to the same quarter of 2019.

In addition to payroll expenses, Second Draw PPP loans will now also cover:  costs to modify operations due to COVID; out of pocket (not insured) property damage costs due to riots; COVID related employee protection costs; and supplier related COVID costs.  See page 14 for specific details relating to farmers and ranchers.

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