Earlier this month, the SBA and Treasury interpreted the language of the second phase of the Paycheck Protection Program — or commonly referred to as the second draw of the PPP program. Passed before the end of 2020, the new legislation (The Economic Aid Act) established the second draw of the program and additionally enhanced and changed some of the previous rules of the PPP’s first draw. Although there are many items that are included in the 5,000+ page document, we want to highlight the more interesting and/or impactful aspects of the recently passed legislation.
Here are some of the items that are worth noting as the SBA prepares the portal for accepting applications for PPP Draw 2:
– The deadline for filing and completing the application for the second draw is March 31, 2021. However, many advisors are encouraging companies to file as soon as possible to avoid potential delays related to volume and/or depletion of funding (heaven forbid!). The reality is that most of the banks will not be able to send any applications to the SBA until the week of January 18th, but all companies should make sure that they have their documentation in order.
– The definition of what is calculated as payroll costs has changed to the company’s benefit. Payroll-related costs now include employer’s life, disability, vision, or dental insurance in addition to the already included medical insurance premiums. This will have a positive impact on the potential loan amount a company can apply for under the program.
– There has been some much needed extra relief for the hospitality industry. The standard calculation for the application’s total eligible loan amount is determined by multiplying the average payroll-related costs by 2.5. The total eligible loan amount for the hotel and restaurant industry will be calculated by a multiplier of 3.5. The qualification for this treatment is that your business has to be classified as 72 under the NAICS coding system. Although this will not completely eliminate the financial impact that this industry has endured over the past several months, it is a good starting point.
– The list of forgivable expenses has increased in this latest update to the PPP, including operational software, expenses from contracts dated prior to the onset of the pandemic, work environment and health regulation compliance costs, and any damage related to riots and protests incurred in 2020.
– There was a significant enhancement to the Employee Retention Credit which now extends from 12/31/2020 through 7/1/2021, and the credit increased from $5K per employee maximum for 2020 to $14K maximum per employee for 2021. The original PPP did not allow a company to use this credit if they applied and received a PPP loan; however, the Act signed at the end of 2020 removed this restriction.
Takeaway: There are a lot of other enhancements to this program that will benefit small business owners and the employees that work for them in addition to specific grants that target certain industries. Make sure that you have a trusted financial advisor assist you with the PPP Draw 2 application process in order to maximize both the loans that you receive and the amount that is forgiven. If you need a free consultation, please contact us at firstname.lastname@example.org.
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