Congress Approves $284 Billion For PPP Loans

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CHARLOTTE – On Sunday, December 27, President Trump signed a new stimulus package into law.  Economic Impact Payments for individuals and families have garnered a lot of news coverage since then, but the stimulus package also includes much-needed help for small businesses who continue to struggle to stay afloat through the continuing pandemic.

The new stimulus package is primed to help small businesses impacted by COVID-19 with a second round of Paycheck Protection Program loans.  The $284 billion Congress approved for this “second draw” is reserved for corporations, LLCs, sole proprietors, self-employed individuals, and independent contractors with fewer than 300 employees.  

To apply for this second round of PPP, you must provide proof that your income has declined by 25% or more in any quarter of 2020 as compared to 2019, and you must have been in business prior to February 15, 2020.  Businesses who qualified under the CARES Act but did not receive a loan, businesses that obtained a “first round” PPP loan but still need additional funding, and businesses who returned their first PPP loan or did not get the full amount for which they qualified are all eligible.

Just like the first round of PPP, applicants can receive up to 2.5 times their average monthly payroll in 2019 (capped at $2 million).  Second round PPP loans are forgivable if you spend at least 60% of the funds on payroll expenses as defined by the CARES Act, which includes expenses beyond wages and salaries like employer contributions to retirement and insurance.  Borrowers may spend a maximum of 40% on other qualifying expenses and choose an 8- or 24-week period to exhaust the loan.

The new stimulus package also includes provisions meant to help some of the industries hit hardest by the pandemic.  Hotels and restaurants, for example, can apply for 3.5 times their average monthly payroll costs.  The bill also includes set-asides for small businesses with fewer than ten employees as well as those located in low- and moderate-income areas.  The hope is that these provisions will help level the playing field, making it easier for businesses who may have been shut out of the first round of PPP funding to get the loans they need.

A portion of PPP loans can be used for non-payroll expenses such as personal protective equipment.
A portion of PPP loans can be used for non-payroll expenses such as personal protective equipment.

The new bill brings other important changes from the first round of PPP.  PPP loans are now tax-deductible, and there will be a simplified forgiveness process for loans of $150K or less including an as-yet-to-be-released one-page forgiveness application.  It also expands the list of qualifying non-payroll expenses funds can be used for to include payment for software, cloud services, accounting and human resources, property damage due to civil unrest, personal protective equipment and COVID-19 prevention equipment, supplier costs contracted or ordered before receipt of the loan, and costs of perishable goods ordered before or during the life of the loan.

If you’re hoping to take advantage of this second round of PPP, you’ll need to act fast.  At the time of print, the SBA had yet to release guidance or regulations pertaining to this second round of PPP, but various news outlets anticipate that PPP funds will become available in mid-January.  

In the meantime, there are steps you can take to ensure you are prepared to apply as soon as funds become available.  First, figure out your income by quarters in 2020 versus 2019.  Remember, you’ll have to be able to prove at least a 25% decrease in gross revenue.  You can also begin contacting potential lenders like local banks, community lending institutions and credit unions to ask whether they’ll be participating in the next round of PPP lending.  It doesn’t hurt to find more than one lending source, and you might have a better chance of getting a PPP loan if you connect with an individual lending officer.  Lastly, keep your eyes and ears open.  The SBA has ten days from the enactment of the new bill to issue regulations, and you’ll have the best chance of receiving aid if you apply the day the application opens.

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Mary Beth Foster
Mary Beth Foster works part time as an essay specialist at Charlotte Latin School and full time as a mom to her five-year-old daughter Hannah and her two-year-old son Henry. Prior to having children, she worked as a high school English teacher for nine years. Most recently, she chaired the English department at Queen's Grant High School. She and her husband have lived in Mint Hill with their children and their cats since 2011.