Welcome back, PPP. This sequel has been greatly anticipated, as approximately 90% of borrowers say they’ve exhausted their first loan. This lifeline may help many small business owners stay afloat until the economy bounces back.
After several months of hand-wringing deliberation and debates on Capitol Hill, the U.S. Congress finally reached an agreement. On December 20, 2020, they agreed to a $900 billion COVID relief package. Of that massive amount, $284 billion has been allocated as PPP for small businesses. PPP was a major initiative of the CARES Act created in March.
This newly minted package provides additional funding for those businesses that did OR did not receive PPP money in the first round. Further, if businesses can demonstrate a loss of 25% or greater in 2020 when compared to the same quarter in 2019, they will have another opportunity to obtain a U.S. small business loan.
For months, businesses that snagged PPP loans have been frantically worried about tax consequences. This latest package dispels the darkness; business expenses that were paid with the forgivable loan do in fact qualify as tax deductions.
This was not as easy decision. Initially, the IRS had issued an emphatic ‘no!’ But the U.S. Congress has taken a different stance; their position is that the whole point of the PPP was to provide funds to pay wages and cover certain expenses. Thus, businesses may claim normal tax deductions for business expenses that were paid with PPP money. [Small Business Expense Protection Act, S.3612 – 116th Congress (2019-2020)].
The latest COVID relief law states “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by [the loan forgiveness provision that says forgiven PPP loans will not count as income].”
In a nutshell: if a PPP loan is completely forgiven, it will not be considered as income and does not need to be repaid.
How the new relief package can benefit small businesses
The second round of PPP loans will be disbursed from December 28, 2020 to March 31, 2021. For most industries, the loan amounts are limited to $2 million. In case you are wondering about the scope of the original PPP program, we have the details; in July, the Treasury stated that 650,000 small businesses – and nonprofits – had received a U.S. loan.
After learning they may claim business expenses as deductions, these businesses are no doubt breathing a sigh of relief. Below is a snapshot of some provisions included in the second round:
- Funding for new PPP loans
- Potential to secure a second PPP loan
- Expansion of eligible for Section 501(c)(6) nonprofits
- $15 billion for live venues
- $20 million for Economic Injury Disaster Loan Program
- PPP borrowers are eligible for Employee Retention Credits
The Small Business Association and the U.S. Treasury hope to ease the burden on PPP lenders, and began sending them loan forgiveness applications in October. The SBA states that they will continue to process all PPP forgiveness applications expeditiously.
The professionals at Astute can assist in determining the amount of liquidity you may need – as well as determine the maximum you may borrow. If you have any questions concerning any aspect of the PPP program, give us a call today and we’ll be happy to discuss.
Contact us today to learn more.
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