The $ 908 billion stimulus package that took effect last week has good news for small businesses still struggling more than nine months after the start of pandemic shutdowns – it includes $ 284 billion for a new round of paycheck protection program loans.
The program, which mirrors fixes to the hastily created PPP CARES Act program last March, allows businesses that benefited from the initial program to get a “second draw” and those that didn’t get it the first time. to apply. It also offers increased benefits to restaurant and accommodation owners, limits the size of businesses that can apply, adds businesses that were not previously eligible, improves their use of them, and facilitates tax exemption, among other changes.
Some of the changes were made during 2020 as the program was tweaked. Others come from feedback gathered during the 2020 process and are new to the new cycle. The application period is open until March 31.
According to the SBA, 28,270 PPP loans were granted to companies in Maine for a total of $ 2.3 billion in the 2020 cycle, which ended in August. The average loan was $ 80,098 and the average number of employees at the company was nine. Overall, more than 5.2 million businesses in the United States received a $ 523 billion loan from the program last year.
In general, here’s what small businesses looking for extra help in 2021 can expect from the new program.
Restaurants, accommodation take a break
The stimulus package provides $ 284 billion for the PPP program and allows companies to borrow up to $ 2 million. The loan amount is calculated by multiplying the 2019 average monthly payroll by 2.5. The exceptions are restaurants, certain food producers, and accommodation businesses that fall under NAICS code 72 – their limit is 3.5 times the 2019 average monthly payroll.
One of the most important changes is that a company must show that it suffered a loss of revenue of 25% or more in 2020. The previous cycle was much more vague, forcing companies to claim that economic uncertainty due to the pandemic made the loan necessary. Companies applying will need to compare 2020 revenue for the first three quarters with the same quarters in 2019, with at least one quarter showing a 25% revenue loss.
On the bright side for small businesses, the employee cap is 300, up from the 500 from the previous cycle. There was a lot of criticism of the previous program which was swallowed up by the big companies, leaving the smaller ones by the wayside.
Eligible businesses that were not previously include some non-profit organizations that were not previously eligible, such as trade organizations, chambers of commerce, and destination marketing organizations (both private and government). Media organizations like newspapers, TV and radio stations that were not eligible due to affiliations that placed them above the employee cap are now also eligible.
Financial enterprises primarily engaged in credit are not eligible, as well as enterprises where more than 15% of their income is derived from political or lobbying activities, any enterprise organized under the laws of the People’s Republic of China or the Hong Kong Special Administrative Region or has a person who is a resident of the People’s Republic of China on its board of directors; any person required to register as a foreign agent under the Foreign Agents Registration Act 1938.
Staff, use changes
Companies were required to use 75% of the 2020 loans for payroll. The new program reduces this figure to 60%, with eligibility for a partial discount possible if this threshold is not met.
As with the last round, in order for the loan to be canceled, the company cannot lay off employees once it has the financing, and the salary costs must remain the same as at the time of the application. Companies that have had to lay off or cut wages due to the pandemic must restore original wages or rehire people within 24 weeks of getting the loan.
It is similar to the First P3 Loan in that it can be used for eight weeks of rent, mortgage, and payroll, and must be used within 24 weeks.
Some of the things the new program loans can be used for that weren’t eligible last time around are:
- Money spent on workplace protection like PPP and Plexiglas barriers, as well as interior upgrades or exterior expansion made necessary by local or state requirements;
- Collective insurance;
- Business operating software or cloud computing service for the delivery of products or services, payroll processing expenses, human resources, sales and invoicing functions; record or track supplies, inventories, records and expenses;
- Payments to suppliers, or for goods, which are necessary for the operation of the business and have been facilitated prior to the loan application; and
- Material damage related to looting due to public unrest in 2020 not covered by insurance or other compensation
A company that got it one last time must have already used, or allocated, its initial PPP money.
Canceled loans will not be taxed
Borrowers will not have to pay taxes on canceled PPP loans, including those for 2020. The new legislation changes the original IRS guidelines that borrowers could not spend salaries and other eligible costs if the The money was already part of a canceled PPP loan. , which means that the loans have been taxed.
Congress leaders said it went against what they planned with the loans and made sure the language was changed in the recent package. Small businesses can deduct these expenses and tax on loans will always be waived. Companies that obtained Small Business Administration economic disaster loans and the advance grants that came with them were originally required to deduct the EIDL grant from the forgiven amount of the loan. This has been changed and is now fully forgivable.
The forgiveness process has been simplified for businesses that borrowed less than $ 150,000, an increase from the previous $ 50,000 offered for the first time in October. The request for forgiveness 3508S makes a page. The borrower provides information on the number of employees retained due to the PPP loan, the estimated amount spent on eligible salary costs and certifies that the information regarding compliance with the PPP requirements is correct.
There is also an EZ loan cancellation application for business owners who are self-employed or have no employees; companies that have not reduced their payroll by more than 25% or the working hours of their employees; companies that suffered financial loss due to national or local pandemic health requirements, but did not cut employee wages by more than 25%.