The first round of PPP loans closed on August 8, 2020, after approximately 5.2 million businesses applied for and received funding. Many businesses in need were shut out of this first round of funding, and many others have since exhausted their funding.
Signed into law on December 27, 2020, a new stimulus package called the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (CRRSAA) earmarks an additional $284B for a new round of PPP funding. The new package also revises key aspects of the original CARES Act to offer more flexibility to small businesses, including:
- Providing additional funding, called “second draw loans”, for businesses that did not receive PPP funding in the first round, with a portion of funding designated for underserved business communities such as minority- and women-owned businesses. Businesses that did receive PPP funding in the first round are also eligible to re-apply.
- Addressing issues with tax relief. Businesses previously could not deduct expenses paid for with PPP loans as they normally would because the loan is forgivable and therefore not considered taxable income. The new CRRSAA eliminates this concern.
Applying for funding from the SBA or other lenders can be confusing under the best circumstances, and it can seem even more complicated in the midst of a pandemic. To help you understand these latest changes to PPP and other SBA funding, we’ve created an in-depth guide to the latest round of PPP.
In this guide, we’ll take a closer look at the changes included in the new stimulus package and how they might affect your business. Read our COVID-19 resources to learn more about what to do if you run out of or don’t get approved for PPP funding.
1. New round of PPP funding
Businesses are now eligible to receive up to two rounds of PPP funding. If you received a PPP in loan in 2020, you are eligible to re-apply in 2021. If you did not receive a PPP loan in 2020, you are also eligible to apply now.
Here’s what hasn’t changed about PPP from the first round of funding:
- Funding amount: Funding is still limited to a maximum of $2M per business, and most businesses can still access up to your average monthly payroll in 2019 x 2.5. “Payroll” includes all costs for W-2 employees, including wages, commissions, bonuses, health insurance, retirement, and state and local taxes.
- Loan forgiveness: Loans will continue to be forgiven if at least 60% of the proceeds are spent on payroll expenses, with a maximum of 40% spent on other qualifying expenses during an 8 or 24 week period. More non-payroll expenses are also now eligible for forgiveness. Keep reading to learn more.
- Loan use: Loan proceeds can be used over a 24 week period.
2. Changes in eligibility to make PPP funding more accessible
The new round of PPP funding includes significant changes to eligibility requirements in order to make funding available to businesses that were often shut out during the first round. To qualify for funding in this new round of PPP, businesses must meet the following criteria:
- Revenue: Gross receipts must have declined by 25% of more in any quarter of 2020 compared to the same quarter in 2019. Previously, businesses were simply required to state that economic uncertainty made a PPP loan necessary.
- Business size: The business must have fewer than 300 employees. Previously, businesses were permitted to have up to 500 employees.
- Business age: The business must have been operating prior to February 15, 2020.
- Funding use: The business must have used, or will use, all of its previous PPP funding.
Qualified businesses include corporations, LLCs, sole proprietors, self-employed individuals, and independent contractors.
Funding has also been set aside for the smallest businesses (under 10 employees) and those in low- and moderate-income areas, as well as for small community banks, credit unions, and community-based lenders to help level the playing field for smaller businesses in greater need.
3. Easier PPP loan forgiveness
If your PPP loan is for $150,000 or less, you now only need to complete a simple one-page form (supplied by your lender) to apply for forgiveness. Under the original CARES Act, this one-page form was only available to businesses who received loans for $50,000 or less.
In addition to simplifying the application process, more expenses are also now eligible for forgiveness. Businesses still need to use at least 60% of their PPP loan to cover payroll, but qualifying non-payroll expenses are now much broader, including payment for:
- Covered operations expenditures, such as payments for business software or cloud cloud computing services that facilitate business operations, product or service delivery, processing of payment, tracking of payroll, HR, sales and billing functions, and accounting or tracking of supplies, inventory, records, and expenses.
- Covered property damage costs, including costs related to vandalism or looting resulting from public disturbances that occurred in 2020 which were not covered by insurance or other compensation.
- Covered supplier costs, such as expenditures made to a supplier that were either essential to the operations of the entity at the time the expenditures were made, made pursuant to a contract or purchase order in effect any time before the covered period, or for perishable goods any time during the covered period.
- Covered worker protection expenditures, including operating or capital expenditures made to comply with COVID-related requirements established by the Department of Health and Human Services, CDC, OSHA, or state and local governments.
How to apply for PPP loan forgiveness
Businesses must apply for loan forgiveness through the lender that provided their loan, with documentation showing that the funds were used appropriately. For most businesses, this means documenting payroll. Most payroll software will provide documentation for this purpose, as well as receipts for expenses.
Your lender has 60 days to review and approve your forgiveness application before submitting the application to the SBA. The SBA then has 90 days to approve your application or request more information.
4. Tax relief for businesses accessing PPP funding
Expenses paid for using a forgivable PPP loan are now tax deductible. This applies to all PPP loans granted under the original CARES Act, as well as the new round of second-draw loans.
Prior to the new stimulus package, businesses could not deduct expenses paid for using PPP funding because the funding is forgiveable and not taxable income. If you used PPP or EIDL grant funding to pay businesses expenses that are normally deductible, you can now claim those deductions as you normally would.
5. Adjustments for harder hit industries
Recognizing that the live events and hospitality industries have been hit harder by pandemic closures and restrictions, the new stimulus package also includes adjustments to help these industries stay afloat as the pandemic continues.
Accommodation and Food Services businesses applying for PPP can access up to 3.5x their average monthly payroll costs (compared to 2.5x for other industries).
$15B in grants are also available for theatres and cultural, arts, and live event facilities that can demonstrate at least a 25% reduction in revenue. $2B has also been set aside for businesses with 50 or fewer full-time employees, but availability for this funding expires after 60 days, so businesses with under 50 employees are encouraged to act fast and apply early.
Grants will be available on a tiered basis:
- In the first 14-day application period, grants will be awarded to eligible entities that have 90% or greater loss of revenue.
- In the second 14-day application period, grants will be awarded to eligible businesses with 70% or greater loss of revenue.
- After the first 28 days, all other eligible entities will be awarded.
Grant proceeds must be used for specific expenses, such as payroll, rent, utilities, or PPE.
The total grant amount available to a business appears to be up to 45% of their 2019 revenue or 85% of 2019 operating expenses, up to a maximum of $10M. Businesses can also receive a second grant up to 50% of the value of the first grant.
To help hard-hit underserved entrepreneur communities access funding, $9B has also been set aside for low-cost long-term capital investments to Community Development Financial Institutions (CFDIs) and Minority Depository Institutions (MDIs), as well as $3B to the CDFI Fund.
6. Adjustments to EIDL program
In the first round of funding, congress approved EIDL grant advances up to $10,000. The SBA scaled this back to $1,000 per employee, leaving many businesses—particularly those in low-income communities—short of the total funding amount expected. Multiple changes to the EIDL program have been introduced to counteract this shortfall:
- Under the CRRSAA, businesses in low-income communities can access the remainder of their $10,000 grant, with a second grant now available equal to the difference of what they received in 2020 and $10,000. For example, if a business received a $1,000 grant in 2020, they are now able to claim the remaining $9,000.
- Eligible businesses in low-income communities that did not receive an EIDL advance in 2020 because funds had run out are now eligible to receive up to $10,000.
- If you previously received both EIDL and PPP funding, you had to deduct the grant advance from your PPP forgiveness amount. This is no longer required.
7. Expansion of Employee Retention Tax Credit
Initially, the Employee Retention Tax Credit (ERTC) could not be used in conjunction with PPP funding, and businesses must have been wholly or partially suspended by government order due to COVID-19 or experience a 50% reduction in gross receipts in 2020 compared to the same quarter in 2019 in order to qualify. The amount of available credit was also capped at 50% of qualifying wages paid from March 12, 2020 to January 1, 2021, up to a total of $10,000.
Now, the ERTC can be used in conjunction with PPP, as long as it’s used for wages not paid for with PPP funds. The credit has also been increased to 70% of qualifying wages each quarter, the timeframe has been extended to July 1, 2021, and up to $10,000 in credits are available per quarter.
8. Limitations to PPP
While the latest adjustments to PPP and EIDL funding are designed to level the playing field and make more funding available to more businesses, there are still some limitations to the program.
In the first round of funding, banks were quickly overwhelmed with applications. Their lending systems were also not set up to prioritize small businesses—instead, banks were (and will likely continue to be) more likely to prioritize existing customers and larger accounts, leaving many SMBs without the assistance they need.
The paperwork and time investment required to apply for PPP funding can also be extremely challenging for busy small business owners, especially those without a dedicated accounting team. One study indicated that 29% of businesses with 1-19 employees were frustrated by the amount of paperwork, while 27% of businesses with 20-99 employees were frustrated by how long the process took. These requirements can make operating a
9. Alternative funding options
Other sources of funding, such as alternative lenders, require considerably less paperwork and are able to process applications and deposit funds in as little as one business day. Alternative funding offers a number of advantages for businesses impacted by COVID-19, including:
- Easier qualification criteria with less paperwork to gather
- Faster review and approvals, with approval in as little as 2-5 business hours and funding in as little as 1 business day
- There are no restrictions on how your funds are used—use them for payroll, inventory, or everyday operating expenses
- A variety of funding options are available to suit your business’s needs, including merchant cash advances, invoice factoring, collateral loans, business lines of credit, and alternative small business loans
- Businesses with low credit can receive funding. Instead of focusing on your credit score, our Funding Advisors will review the overall health and potential of your business
- Businesses in high-risk industries can also receive funding
- “Everything You Need to Know About Coronavirus Federal Small Business Stimulus Aid Programs.” Sean Ludwig. U.S. Chamber of Commerce. Last updated Dec. 28, 2020.
- “What Small Business Owners Need To Know About The New Stimulus Package.” Brian Thompson. Forbes. Dec. 21, 2020.
- “New Relief Package Provides Next Round of PPP Funding for Small Businesses.” Neil Hare. Forbes. Dec. 21, 2020.
- “New Stimulus Bill Includes Second Round of PPP Loans for Small Businesses and Forgiveness Rule Changes Favorable to Borrowers.” Mat Sorenson. Entrepreneur. Dec. 22, 2020.
- “What’s in the stimulus package for small businesses, PPP loans and cultural grants.” Rhonda Abrams. USA Today. Dec. 30, 2020.