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Important Things You Should Know​

PPP Round 3 midst the Covid-19 Pandemic

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  • Any eligible for-profit sole proprietor, partnership, C-Corp, S-Corp, or LLC business which meets SBA’s employee size criteria:
    • 2nd draw applicants: no more than 300 employees.
    • 1st time applicants: no more than 500 employees, or that meets SBA’s industry size employee standard if more than 500.
  • Any eligible 501(c)(3) non-profit organization.
  • Any eligible agricultural cooperative, housing cooperative, 501(c)(6) non-profit organization, or destination marketing organization that meets 2nd draw or 1st time applicant SBA employee size criteria or, if applicable, SBA industry size employee standard if more than 500.
  • Any eligible 509(c)(19) veterans organization.
  • Any eligible sec. 31(b)(2)(c) of the Small Business Act tribal business concern.
  • Any eligible independent contractor, self-employed individual, sole proprietor with no employees.
  • Any eligible business with NAICS code beginning 72 (Accommodation and Food Services) with 1 or more locations, and less than 500 employees per location.
  • Any eligible news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business, or non-profit public broadcasting entity with a trade or business under NAICS code 511110 or 5151, that employs no more than 500 employees or, if applicable, SBA industry size employee standard if more than 500.
  • Any eligible small business that meets SBA’s applicable industry revenue size standard, or SBA alternative size standard.
  • For 2nd draw applicants: can demonstrate 25% or more reduction in gross receipts between comparable Quarters, 2019 vs. 2020.
  • Maximum available loan amount:
    • 2nd draw applicants: $2 million.
    • 1st time applicants: $10 million for an individual, $20 million for a corporate group.
  • Loan forgiveness periods: 8- weeks or 24-weeks, your choice.
  • Loan calculation factor:
    • 2.5x payroll, plus payroll costs.
    • 3.5x payroll, plus payroll costs, for an Accommodation and Food Services business.
  • For 2nd draw applicants: Any designated eligible business which has used, or will use, the full amount of its 1st PPP loan, and can demonstrate 25% of more reduction in gross receipts, typically between an audited comparable 1st, 2nd or 3rd Quarter 2019 vs. an attested comparable 1st, 2nd or 3rd Quarter 2020.
  • For an eligible applicant that wasn’t in business in the 1st, 2nd or 3rd Quarter 2019 (January 1 – September 30) but was in business in the 4th Quarter 2019 (October 1 – December 31): it’s allowed to compare the 4th Quarter 2019 vs. the 1st, 2nd or 3rd Quarter 2020.
  • Unforgiven loan amount annual interest only a very low fixed 1%.
  • Loan repayments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender.
  • If you, as a borrower, do not apply for loan forgiveness, your loan repayments are deferred for as much as 10 months after the end of the covered loan forgiveness period of either 8 weeks or 24 weeks, whichever is chosen by you.
  • No collateral or personal guarantees required from you.
  • Neither the government nor approved PPP lenders will charge you any fees.
  • Loans issued to you prior to June 5, 2020 have a maturity of two years. Loans issued to you after June 5, 2020 have a maturity of five years.
  • Any eligible 501(c)(3) non-profit organization, e.g., tax-exempt corporations, trusts, or unincorporated associations operated exclusively for religious, charitable, scientific, literary, or educational purposes, for testing for public safety, to foster national or international amateur sports competition, for the prevention of cruelty to children, women, or animals.
  • Any eligible agricultural cooperative, housing cooperative, 501(c)(6) non-profit organization (e.g., tax-exempt business leagues, chambers of commerce, real estate boards, boards of trade, professional football league), or destination marketing organization (e.g., tourist boards, tourist authorities, conventions and visitors bureaux) that meets 2nd draw or 1st time applicant SBA employee size criteria or, if applicable, SBA industry size employee standard if more than 500.
  • Any eligible 509(c)(19) veterans’ organization, i.e., military veterans’ organizations.
  • Any eligible sec. 31(b)(2)(c) of the Small Business Act tribal business concern, i.e., sovereign Native American businesses.
  • Any eligible independent contractor, self-employed individual, sole proprietor with no employees.
  • Any eligible business with NAICS code beginning 72 (Accommodation and Food Services) with 1 or more locations, and less than 500 employees per location.
  • Any eligible News organization that is majority owned or controlled by a NAICS code 511110 or 5151 business, or non-profit public broadcasting entity with a trade or business under NAICS code 511110 or 5151, that employs no more than 500 employees or, if applicable, SBA industry size employee standard if more than 500.
  • Entities involved in political and lobbying activities, including engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think-tank in any public document.
  • Entities affiliated with entities in the People’s Republic of China.
  • Registrants under the Foreign Agents Registrants Act,
  • Entities that receive a grant under the Shuttered Venue Operator Grant Program.
  • Publicly held companies.
  • Businesses or organizations not in operation on February 15, 2020.
  • If the eligible loan amount has increased due to changes in Interim Final Rules, you are allowed to work with lenders to modify your loan value regardless of whether the loan has been fully disbursed.
  • The following specific things have to be done to get an increase:
    • Requirements to reapply for a loan or a loan increase:
  • Loan increases or reapplications are prohibited for PPP loans if the SBA has remitted a forgiveness payment to the lender for the loan, though such borrowers may be eligible for a second-draw PPP loan.
  • Increases to first-draw PPP loans can be made only by the lender of record for the loan, i.e., the lender that is reflected in the SBA’s system as the current owner of the loan. If the loan was sold after it was originated, the lender that purchased the loan is the lender of record.
  • Borrowers that returned or repaid a first-draw PPP loan are eligible to reapply for that loan provided the lender reported to the SBA before Dec. 27 that the borrower had fully repaid the loan or canceled the loan. The borrower may then apply for a new first-draw PPP loan in an amount the borrower is eligible for under current PPP rules.
  • Borrowers that returned or repaid part of a first-draw PPP loan may request a loan increase equal to the difference between the amount not paid back by the borrower and the amount previously approved. The lender may disburse those funds to the borrower provided that the lender reported to the SBA before Dec. 27 that the loan had been partially repaid. For example, if a borrower returned $25,000 of a $100,000 PPP loan because the borrower could not spend the funds during the covered period, the lender can disburse $25,000 back to the borrower provided other conditions are met.
  • Borrowers that did not accept before Dec. 27 the full amount of a first-draw PPP loan for which they were approved may apply for an increase in the loan up to the amount previously approved. Lenders may approve the request and disburse the funds but must follow one of two processes detailed in the notice based on how they reported before Dec. 27 that the borrower did not accept the full amount of the PPP loan.
    • Partnerships:
  • If a partnership received a first-draw PPP loan that covered payroll costs of the partnership’s employees and other eligible expenses, but did not include any amount for partner compensation, the lender may electronically submit a request through the SBA’s E-Tran Servicing site (E-Tran) to increase the loan amount to include appropriate partner compensation, even if the loan has been fully disbursed and the lender’s first Form 1502 report has already been submitted.
  • The amount of the increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower or $20 million for a corporate group). Additionally, the borrower must provide the lender with all required documentation to support the calculation of the increase to include partner compensation.
  • The lender must submit any request for an increase electronically in E-Tran no later than March 31 and is subject to the availability of funds.
  • Seasonal employers:
  • Section 336 of the Economic Aid Act revised the method by which a seasonal employer may determine its maximum PPP loan amount. Seasonal employers are now allowed to use the average total monthly payments for payroll for any 12-week period the employer selects between Feb. 15, 2019, and Feb. 15, 2020. Seasonal employers that received a first-draw PPP loan may be eligible for a loan increase if application of the methodology in Section 336 results in the calculation of a higher loan amount.
  • In that scenario, the lender may electronically submit a request through E-Tran to increase the loan, provided it does not exceed the applicable maximum PPP loan amounts.
  • Farmers and ranchers:
  • Section 313 of the Economic Aid Act changed the calculation of the maximum loan amount for certain farmers and ranchers. If an eligible farmer or rancher received a first-draw PPP loan and would be eligible for a higher maximum loan amount based on the formula described in subsection B.4.d. of the consolidated IFR, the lender of record may electronically submit a request through E-Tran to increase the loan amount, again subject to the loan maximum and documentation requirements.
  • Payroll (minimum 60% of funds)
  • All other eligible expenses (maximum 40% of funds):
  • Payroll-related expenses, including other employer-provided group insurance benefits such as group life, disability, vision, and dental insurance.
  • Rent/Mortgage Interest.
  • Eligible Utilities: electricity, water, gas, sewage, telephone (cell phone and landline), Internet, eligible business transportation costs, eligible business meals.
  • Plus four new lists of expenses:
    • Covered Operations Expenditures such as payment for any business-use software, cloud computing, and other human resources and accounting applications.
    • Covered Property Damage such as costs related to public disturbances that occurred in 2020 not covered by insurance.
    • Covered Supplier Costs such as payments made to suppliers pursuant to a contract, purchase order, or order for goods and services in effect prior to getting a loan that are essential for you to operate your business when the expenditure was made. Supplier costs for perishable goods can be made before or during the life of a loan.
    • Covered Worker Protection Expenditures such as personal protection equipment, guard barriers, cleaning supplies, and all adaptive investments made to comply with Federal authority health and safety guidelines and/or any equivalent State and local authority guidance related to COVID-19 starting March 1, 2020, till the end of emergency declaration.
  • For loans under $150,000 a borrower now can simply sign and submit a certification to the lender that’s no more than 1-page long.
  • It simply includes:
  • A description of the number of employees the borrower was able to retain because of the loan.
  • The estimated total amount of the loan spent on payroll costs.
  • The total loan amount.
  • The two simple things you as such a borrower needs to attest to are:
  • You accurately provided the required certification.
  • You complied with PPP guidelines.
  • Business records related to employment.
  • Other eligible business records related to:
  • Payroll Costs.
  • Rent/Mortgage Interest.
  • Utilities.
  • Covered Operations Expenditures.
  • Covered Property Damage.
  • Covered Supplier Costs.
  • Covered Worker Protection Expenditures.
  • Business records related need to be maintained for four years.
  • Other eligible business records need to be maintained for three years.
  • Your loan may still be audited if fraud is suspected.
  • Yes, but your loan forgiveness may still be reduced, if not the full 100%, based on the number of employees and employee salary level that fell more than 25%.
  • Qualifying period to apply for forgiveness has been extended for 10 months after your forgiveness period ends. So:
    • If 8-weeks forgiveness period chosen + 10 months = ~12 months to restore to pre-pandemic level.
    • If 24-weeks forgiveness period chosen + 10 months = ~16 months to restore to pre-pandemic level.
  • Yes, expenses incurred related to loan forgiveness are now tax deductible to the full extent they are under existing law.
  • The new legislation overrides the Treasury Department and the IRS’s initial decision by providing that businesses are able deduct expenses funded with PPP loan proceeds. CAA 2021 clarifies that “no deduction shall denied, no tax attribute shall be reduced, and no basis increase shall be denied” by reason of the exclusion of loan forgiveness from taxable income. The legislation also clarifies that in the case of a partnership or S corporation, the loan forgiveness income shall be treated as tax-exempt income that is allocated to the partners or shareholders. As a result, pass-through entity owners will not have a reduction of basis in the pass-through entity as a result of the PPP loan. This treatment applies to original PPP loans as well as the second draw PPP loans.
  • The PPP provisions of CAA 2021 are retroactive and apply to tax years ending after the date of enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) on March 27, 2020. Therefore, these rules apply to all taxpayers, even taxpayers who have already applied for or received forgiveness, as well as those who have already filed tax returns reporting expenditures as nondeductible.
  • Clarified definition that now applies to any loan made before, on, or after enactment, including the forgiveness of the loan:
  • An eligible seasonal employer operates for no more than seven months a year, or
  • An eligible seasonal employer earned no more than 1/3 of its receipts in any six months of the prior calendar year.
  • No, EIDL grant amounts don’t have to be subtracted from your PPP loan forgiveness amount.
  • Key parameters of an EIDL:
    • Current maximum loan amount: $2 million.
  • Long-term loan: 30 years, with the option to defer interest-accrued first repayment for 1 year.
  • Low-interest loan: 3.75% fixed APR for eligible for-profit small businesses (2.75% for eligible non-profit enterprises).
  • Wide-latitude use-of-funds loan: includes financial obligations (fixed debt payments) + operating expenses (working capital, e.g., for accounts receivables, inventories, and equipment + normal operating expenses, e.g., continuation of health care benefits, rent, eligible utilities; currently, rule of non-duplicative use of EIDL and PPP funds is still required) had the COVID-19 pandemic not occurred (applicants must demonstrate minimum 30% annual revenue decline 2019 vs. 2020).
  • New infusion of $20Billion pumped into the SBA’s EIDL empty coffers, under the CAA/Consolidated Appropriations Act passed by Congress on Dec 31, 2020.
  • New extended deadline for 2020 EIDL applications: Dec 31, 2021.
  • New rule that the SBA can also take real estate as collateral, besides more typical assets, e.g., machinery, equipment, furniture, fixtures, etc., under a general security agreement (UCC) required for EIDL loans of more than $25,000.
  • New rule that EIDL 100% forgivable grants will only be awarded to eligible for-profit small businesses (and eligible non-profit enterprises) located in low-income communities as defined in Section 45D(E) of the Internal Revenue Code of 1986 (i.e., “… any population census tract if the poverty rate for such tract is at least 20 percent, or in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.”). This, currently, does not apply to non-grant EIDL loans.
  • Three other SBA loans that just became more attractive are:
    • 7(a) loans. For details about what funds received can be used for, eligibility and ineligibility, what needs to be done to apply, maximum loan amount, repayment terms and interest rates and SBA percent of guaranty, visit https://www.sba.gov/funding-programs/loans/7a-loans
    • 504 loans. For details about what funds received can be used for, eligibility and ineligibility, what needs to be done to apply, maximum loan amount, repayment terms and interest rates, visit https://www.sba.gov/funding-programs/loans/504-loans
    • Microloans. For details about what funds received can be used for, eligibility and ineligibility, what needs to be done to apply, maximum loan amount, repayment terms and interest rates, visit https://www.sba.gov/funding-programs/loans/microloans
    • Reasons why (subject to change based on demand volume and remaining funds available):
    • If you have an existing 7(a), 504 loan, or Microloan: you can get up to up to 8 months of forgiveness (the standard extra 3 months starting February 2021 + an additional 5 months) if you’re in one of the hardest hit sectors, as measured by the severity of sector-wide job losses since the start of the pandemic. These sectors include accommodation and food service, arts, entertainment and recreation, education, laundry and personal care services – with forgiveness amount capped at $9,000 per month.
    • If you apply for a new 7(a), 504, or Microloan and are approved between February 1 – September 30, 2021: the first 6 months of Principal & Interest, up to $9,000 per month, is also forgiven – plus you don’t have to show that you’ve been impacted by COVID-19.
    • To make it easier for your SBA approved lending partner, and you the borrower, the loan guarantee amount by the SBA has been increased. Examples: up to 90% for 7(a) loans, from 50% to 70% for 7(a) Express Loans up to $350,000.
    • Increases in loan amounts available. Examples: from $350,000 to $1 million between January 1 – October 1, 2021 for 7(a) Express Loans.
    • Temporary fee reductions. Examples: waiver of 7(a) and 504 loan fees to lenders and borrowers.
    • Low-interest refinancing. Enhanced 504 refinancing rules to create reciprocity for refinancing between 504 and 7(a) loans, authority to grant most experienced and successful SBA approved 504 lending partners to expedite 504 loans less than $500,000.
    • Enhanced Recovery Assistance via Microloans. Examples: increased access to Microloans and technical assistance for businesses impacted by the COVID-19 pandemic, temporary extension of time borrowers have to repay Microloans from 6 to 8 years, temporary increase of amount an SBA approved lending partner may borrow to deploy Microloans to small businesses from $6 million to $10 million, allows SBA approved lending partners to access more technical assistance funding if they serve rural areas, temporarily waive the limitations for technical assistance grants and 50% limitation of pre-loan technical assistance to maximize flexibility and reduce red tape for SBA approved lending partners, increase funding available to SBA approved lending partners for Microloan Technical Assistance by $50 million from $7 million to $64 million.
    • To get matched with an SBA approved lending partner for a 7(a), 504, or Microloan, go to: https://catran.sba.gov/lendermatch/form/contact.cfm
  • The new law now authorizes the SBA to grant (meaning 100% forgivable amounts):
  • $15 billion total.
  • A set-aside of $2 billion for eligible entities that employ not more than 50 full-time employees. Any amounts from this set-aside remaining after 60 days from the date of this program’s implementation shall become available to all eligible applicants.
  • Up to $10 million initial amount to eligible applicants, and then a supplemental grant up to 50% of the initial grant.
  • During the first 14-days of implementation: only eligible applicants that suffered 90% or greater revenue loss. Then, during the next 14-days of implementation: only eligible applicants that suffered 70% or greater revenue loss. Then, 28 days after first and second priority awards are made: eligible applicants that suffered 25% or greater revenue loss. Finally, supplemental funding will be made available to eligible applicants that suffered 70% or greater revenue loss.
  • Funds shall be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
  • For more specifics, such as eligibility requirements, visit https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/shuttered-venue-operators-grant
  • The 6 different categories of Arts industry entities eligible to receive Shuttered Venue Operators Grants from the SBA are:
  • Live venue operators or promoters.
  • Theatrical producers.
  • Live performing arts organization operators.
  • Museum operators.
  • Motion picture theater operators.
  • Talent representatives
  • The new law sets-aside specific amounts of PPP funds which eligible minority-owned small businesses qualify for – generally defined as more than 50% owned by Black, Hispanic, Asian, Native American, or female entrepreneurs, with 10 or fewer employees – given the more severe impact (due to factors such as smaller cash reserves, weaker banking relationships, pre-existing funding gaps) suffered by such businesses as well as eligible businesses located in LMI areas because of the COVID-19 pandemic relative to the impact on businesses in non LMI areas.
  • The new law also sets-aside specific amounts of EIDL 100% forgivable grants for specific community development lenders to award to eligible for-profit small businesses (and eligible non-profit enterprises) located in low-income communities as defined in Section 45D(E) of the Internal Revenue Code of 1986 (i.e., “… any population census tract if the poverty rate for such tract is at least 20 percent, or in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.”). This, currently, does not apply to non-grant EIDL loans.
  • The set-aside amounts:
  • For minority-owned businesses: $15 billion for 1st time PPP loans; $25 billion for 2nd draw PPP loans, for small businesses with 10 or fewer employees, as well as eligible businesses located in LMIs. Maximum loan amount: $250,000.
  • For community development lenders: $15 billion for small community banks, small credit unions, and small agricultural credit unions; $15 billion for mission-based community lenders such as community development financial institutions (CDFIs), certified development companies (CDCs), minority depository institutions (MDIs), SBA Microloan lending partners.
  • The Employee Retention Tax Credit rules and benefits have been clarified and expanded.
  • News about the time period ERTC is available:
  • Qualified wages paid after March 12, 2020 and before July 1, 2021 (extended from January 1, 2021) – making the first two Quarters of 2021 available.
  • News about ERTC eligibility:
  • Beginning January 1, 2021 (now clarified), the credit is available to companies with operations that are either fully or partially suspended by a COVID-19 governmental order and only during the period the order is in force; or
  • Gross receipts are less than 80% (expanded prior 50%) of gross receipts for the same Quarter in 2019.
  • Companies that were not in existence in 2019, may (now clarified) use a comparison to 2020.
  • News about percentage of wages:
  • Beginning January 1, 2021 (now clarified), the cap is increased to $7,000 per employee [$10,000 in qualified wages x 70%] for each of the first two Quarters of 2021 for a possible $14,000 credit per employee (expanded from previous annual cap of $5,000 per employee [$10,000 in qualified wages x 50%]).
  • The 2021 credit is available even if the employer received the $5,000 maximum credit for wages paid to such employee in 2020 (now clarified).
  • News about employer size for whether an employee is working or not:
  • Beginning January 1, 2021 (now clarified), the threshold is increased to 500 employees (expanded from previous threshold of 100 employees, whether teleworking or working at the workplace, even though at reduced capacity due to reduction in business).
  • A company with 500 (expanded from 100) or fewer employees is eligible for the credit, whether teleworking or working at the workplace (now clarified).
  • The 500-employee threshold now includes employees of all affiliated companies sharing more than 50% common ownership (now clarified).
  • News about PPP loan interplay with ERTC:
  • Following changes are retroactive (now clarified) to the effective date under original law for wages paid after March 1, 2020.
  • A company that received or receives a PPP loan is no longer prohibited from claiming the ERTC (now clarified prior rule that a business which received a PPP loan was ineligible to claim the ERTC).
  • However, the ERTC may not be claimed for wages paid with PPP loan funds that have been forgiven (now clarified).
  • A company which received a PPP loan in 2020 and paid qualified wages in excess of the amount of the forgiven PPP loan used to pay wages, and is otherwise eligible to claim the credit, can claim the credit retroactively (now clarified). IRS guidance expected about how to, retroactively, claim this credit.
  • A company affiliated to a PPP loan borrower which did not claim the credit because of the prior disallowance rule (a company with more than 50% common ownership of an affiliate which received a PPP loan was previously disallowed from claiming the credit) can, if otherwise eligible to do so, claim the credit retroactively (now clarified).
  • News about advance payments:
  • IRS guidance expected allowing advance payment of the credit for companies with 500 or fewer employees, based on 70% of average payroll for the same Quarter in 2019 (expanded from prior no provision to receive the credit before qualified wages were paid).
  • If the amount of the actual credit determined at the end of a Quarter is less than the amount of the advance payment, the company will need to repay the excess amount (now clarified).
  • News about limitation on hazard pay:
  • Now, credit is allowed for hazardous duty pay increases, e.g., bonus pay to essential workers (expanded from prior no credit for hazard pay increases, e.g., 30-day wage limitation removed).
  • News about disallowance of credit for governmental entities:
  •  Beginning January 1, 2021, the following governmental entities are eligible for the credit: public colleges and universities, organizations whose principal purpose is providing medical or hospital care, certain Federal instrumentalities such as Federal credit unions (expanded from prior disallowance of credit to any Federal, State, or local government or agency or instrumentality).
  • News about definition of gross receipts for tax exempt entities:
  • The new law defines gross receipts for tax exempt entities by reference to Section 6033 of the Internal Revenue Code (now clarified from prior no definition of gross receipts for tax exempt entities).
  • Now, gross receipts for tax exempt entities include: contributions, gifts, grants, dues or assessments, sales or receipts from unrelated business activities, sale of assets, and investment income such as interest, dividends, rents, and royalties.
  • Now, gross receipts are not reduced for any associated costs or expenses.
  • Now, you can defer payment your employer’s share of 2020 Social Security taxes as follows:
  • 50% of deferred 2020 amounts by December 31, 2021.
  • Balance 50% of deferred 2020 amounts by December 31, 2022.
  • Now, you can deduct 100% of your business meals at a restaurant for 2021 and 2022. This is part of the Federal government’s effort to support the severely impacted restaurant sector.

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