Small businesses can look forward to relief from a renewed PPP loan program. This new round of funding will give struggling small businesses the chance to stay afloat during one of the most volatile economic periods of our time. The new PPP loan forgiveness simplification rules for $150K or less are listed below:
If You Borrowed Under $150K
For anyone applying for less than $150,000, you will have to fill out an application for forgiveness via a one-page attestation.
As with the previous PPP program, you will not be eligible for PPP loan forgiveness if your loan doesn't meet the following criteria.
Use of PPP Funds
Terms and conditions of loan amounts are based on a business's monthly payroll cost. Businesses can use the loans for the following:
Wage, salary, parental, medical, family, vacation, sick leave, health benefits
- Mortgage Interest
As long as lease agreements meet specific criteria (not yet established)
Same as above, this must meet specific criteria
As long as service began before a date that's still to be determined
The SBA still guarantees 100% of these instruments with no collateral or personal guarantee required. The maturity of these loans is five years with a 1% interest on a non-adjustable, non-compounding rate. Use a forgiveness calculator to fine-tune your estimates. (This one uses a worksheet Excel.)
Every application is going to be processed by lenders under delegated authorities. Lender verification of borrower certifications will determine borrower eligibility.
One of the most exciting aspects of the new PPP loans is that the Economic Aid Act allows any business that's already applied for PPP another application. They are calling these second draw loans.
The application deadline for second draw loans is March 31, 2021. While many of the original PPP program’s terms and conditions apply, the second draw contains stricter eligibility requirements and lower limits on amounts.
Other qualifications for second draw loans include the following:
- The full amount of the first PPP loan should or will be used by the expected date of disbursement for the second PPP loan.
- Borrower must have spent the first PPP loan's full amount on eligible expenses.
- Borrower will need to prove a reduction in revenue of 25% or more as of 2020 compared to 2019. (Calculate gross receipts in any 2020 quarter with the applicable quarter in 2019, or present copies of annual tax forms showing reductions in receipts in loss of 25% comparing 2020 with 2019.)
Second draws will go through community financiers in low- to moderate-income neighborhoods. Funds set aside for these second draw loans require the business to have a max of 10 employees or the loans to be for $250,000 or less.
PPP and Small Business
SBA released a paper that hopes to rectify disparity in the previous PPP program. The “Guidance on Accessing Capital for Minority, Underserved, Veteran, and Women-Owned Business Concerns” addresses a commitment to serving women- and minority-owned businesses, sectors considered underserved during 2020's application process.
Like any SBA loan, financial instruments come with conditions. The new forgiveness program:
- Broadens PPP forgivable and allowable expenses to cover several technology expenses, costs of property damage, costs to the supplier (certain vendor/supplier expenses which are essential to operations, such as perishable goods), and expenditures used to cover worker protection (expenses for worker safety).
- Gives borrowers the ability to select a loan forgiveness period that covers between eight and six months.
- It delineates payroll costs to specific insurance group payments. That includes vision, group life, dental, or disability insurance.
- Revokes a CARES Act provision requiring PPP customers to deduct Economic Injury Disaster Loan amounts from their PPP forgiveness amount.
- Changes several of the December 31, 2020, timelines
- Highlights collaboration between Employee Retention Tax Credit and the PPP.
- Modifies and extends Employee Retention Tax Credits.
Tax Deductibility Clarification
In December 2020, the Office of Advocacy met to discuss state and federal tax matters surrounding the PPP. These representatives agreed the original PPP loans were issued with stringent IRS guidance regarding expense deductibility and, in essence, undercut the purpose of forgiveness.
The meeting ended in a request for a fix sent to the House and Senate Small Business Committees. Without a fix developed and implemented, restaurant owners, laundromats, and any other entity was looking at 2020 tax increases of up to almost 40%.
Fortunately, the Senate did step in. To help businesses survive the recession with tax relief, the governing body determined that they will apply the 1986 Internal Revenue Code to allow forgiveness of PPP funds used for business expenses. This is a significant breakthrough for small businesses on the verge of financial collapse due to COVID-19.
What is the Deadline for PPP Loan Forgiveness?
Whether you're borrowing under $50k or it's your first or second draw, deadlines for applying for PPP end on March 31, 2021. Here are a few application instructions to take into account.
- On January 11, 2021, financial institutions began submitting first draw loan applicants.
- On January 13, 2021, they were accepting second draw applications.
- Women- and minority-owned businesses will have an exclusive two-day period to apply for reserved funds. While they have not released specific dates yet, the SBA wants to ensure that they don't neglect underserved businesses.
Interim Final Rule
The interim final rule is used to simplify the review and forgiveness of PPP loans under $50k and other PPP loans. The application will ensure responsible review of borrower documentation regarding forgiveness-eligible costs in excess of the borrower's PPP amount.
Despite the SBA's attempt to simplify the PPP loan process, they advise you not to take on any business loan until you speak with your tax consultant. Also, take note that borrowers awaiting PPP loan forgiveness could see delays in their second draw application. Otherwise, small businesses looking for financial relief from the new PPP loan forgiveness simplification rules for $150k or less.
About the Author, Madison Taylor
Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.