PPP: 2021 Edition

PPP: 2021 EditionOne of the final acts of the outgoing administration in Washington was the signing of a bill that had $284B allocated for a second round of the Paycheck Protection Program (PPP).  The program is set to last until March 31, 2021 or when all the allocated funds have been assigned, whichever comes first.  The pool of those eligible for this round is significantly larger than last time, and in even better news for some, those who already received a first PPP loan and had it forgiven are eligible to receive a second one.  


First-time borrowers must have a business of under 500 employees, and that business must have been operating since February 15th, 2020 (and must still be operating).  Gross receipts in the first three quarters of 2020 must have been reduced by at least 25% from the corresponding quarters in 2019.  The loan amounts are capped at $10M.

Second-time borrowers must have a business under 300 employees, and must have used or allocated all of the funding they received under the first round of PPP.  Their loan amounts are capped at $2M.

How to Calculate

There are two ways to calculate your loan amount.  You can take either:

  • Average monthly payroll in 2019 or
  • Average monthly payroll in the year prior to the start of the loan

That number is then multiplied by 2.5 for most businesses, or 3.5 for hospitality businesses.  It’s just one of many boxes on a standard government form.

What Expenses are Eligible?

In round 1, the eligible expenses were narrowly defined: rent, mortgage interest, payroll, and utilities.  This round took account of several other costs:

  1. Property Damage.  If your business was the recipient of vandalism, looting, etc. that was not covered by insurance or other compensation, repairs are covered.
  2. Operations Expenditures.  If your business had to get new digital infrastructure to enable remote working, for example, such as software or cloud services, those costs are covered.
  3. Supplier costs.  If you had payments to suppliers whose products/services were essential to you at the time of payment (or are now), those payments are covered.
  4. Worker protection.  If you have had to make changes to your work environment, such as construction of barriers, expansion of the premises for social distancing needs, installation of filtration or ventilation systems, or ongoing costs like masks or gel, those costs are also covered.

Tax Implications

The forgiveness guidance given for the first round of loans is the same in this round, but with more explicit financial and tax guidance.  Points worth noting include:

  • The loans have a five year maturity, and are pegged to a 1% non adjustable, not compounding interest rate
  • No prepayment penalties may be levied by lenders
  • The covered period (the period in which the loan must be used in order to be considered forgivable) can be between 8-24 weeks, and can be chosen by the borrower

The SBA has a tool to help you find a lender in your area (as well as a PDF defending themselves from accusations of abuse from the first round of PPP).  There are even some nonbank lenders getting in on this, including Square (known for its point-of-sale and credit card processing business) and Fintech player Kabbage.

Clarification was also given that PPP forgiven funds would not be taxed as income, and any normally-deductible expenses paid for by PPP funds would remain deductible.

Should You Take the Money?

At the risk of sounding like an accountant, “it depends.”  If you really need the money and are eligible, there’s already precedent in place for loan forgiveness so there’s virtually none of the uncertainty that existed last year when the first round of PPP came out.  

If you are considering selling your business, talk it over with a business broker (we know a few) as to whether this is something that should be done before putting your business on the market.  

However, if you don’t really need the money, then you probably shouldn’t take it.  There’s not an unlimited pool of funds, and there are businesses out there that could really use those funds to not just “get by,” but simply survive.  If we are going to make it through these months and years together, we are going to have to (continue to) think of others even as we make highly personal business decisions.

One of the new skill sets we picked up in 2020 was learning the sorts of questions banks contemplating a buy/sell business transaction are asking when Covid-19 and PPP are in the mix.  To learn more, feel free to give us a call.