On Monday, January 11, the Small Business Administration (SBA) began the process of accepting applications for the second round of Paycheck Protection Program (PPP) loans that are being offered to businesses struggling due to Covid-19. The second round of the PPP program has altered requirements as to who is eligible. Some of the new requirements include that the business 1) employ no more than 300 employees, 2) have used the entire amount of their first PPP loans or anticipate using the entire amount, and 3) having gross receipts in the first three quarters of 2020 that saw at least a 25 percent reduction from the same timeframe in 2019.
Second round borrowers are given the option to calculate the maximum loan amount by multiplying the borrower’s average monthly payroll in the one-year period prior to the date of the loan’s disbursement. Additionally, the new requirements allow for a more flexible coverage period, meaning the period in which the business is required to use the loan in order to qualify for loan forgiveness. The current maximum period for using the loan is 24 weeks, which has provided business owners with a greater ability to adjust to a potential reduction in their workforce. A new development in the PPP program is the addition of covered expenses that the PPP loan can be used for. The funds can now be used for covered operation expenditures, covered property damages costs, and covered worker protection expenditures, such as expenditures made in order to ensure compliance with guidance from the CDC, OSHA, or a particular state or local government. PPP loans will not be classified as taxable income, and thus expenses that are paid off through loan funds are tax deductible.
Some additional changes in this round of PPP financing include potential eligibility for 501(c)(6) not for profit organizations and the eligibility of borrowers who are in bankruptcy. Notably, the inspector General for the SBA has mentioned that the process for this new round of application filing will involve a more stringent inspection and inquiry into the businesses that apply for the loan due to the previous granting of loans to individuals and entities who were not eligible. The inspector general stated that more than 50,000 loans were distributed to individuals who were on a do-not-pay list of ineligibility. This possible fraud has resulted in additional examination of the financial backgrounds of individuals seeking loans. All individuals applying for the PPP loan will have their names, or entity names cross-checked with the do-not-pay (DNP) list individuals/businesses who are not eligible for loans.
Although the program has simplified and expanded eligibility for PPP loans, the additional analysis with the DNP list may cause the entire process to seem very daunting. Small businesses and business owners who are in need of assistance are still encouraged to apply for these loans that may serve as a lifeline during this difficult time. If you have any questions on your potential eligibility for these loans, or need assistance in understanding the program requirements, please do not hesitate to call us at 516-888-1208 or email Cynthia Augello at [email protected].
Thank you to Joel Thomas, JD for his assistance with this post.