April 6, 2021 Update: The SBA will continue to accept PPP loan applications until May 31, 2021. Read more from the SBA here.

With the recent passing of a $900 billion stimulus bill by Congress, individuals and small businesses that continue to be impacted by the COVID-19 pandemic may soon receive some additional assistance.

For businesses, the new stimulus bill includes significant updates to the Paycheck Protection Program (PPP), changes to how PPP loans are taxed, tax credit eligibility changes, the ability to receive grants and more.

During the recent Small Business Update, U.S. Chamber of Commerce executive vice president and chief policy officer Neil Bradley and Jeanette Mulvey, content director at CO—, discussed the new coronavirus relief deal and the updates to PPP.

Here are some of the largest takeaways (among many) from the discussion.

Businesses can apply for PPP loans if they didn’t before

The new stimulus bill reopens the PPP program for any business that did not apply before and expands which types of businesses can apply for forgivable PPP loans, including 501(c)(6) nonprofits, local news media organizations or housing cooperatives. The new funding for first-time PPP loans is available through May 31, 2021, or until the new funds are exhausted.

Bradley said businesses should consider applying even if they did not submit the first time. “Whether you waited too long, the window was closed or whatever the reason, [I would apply],” Bradley said.

Businesses looking to apply for a first-time PPP loan should be in touch with their current lender, community bank or credit union to see if they are accepting applications.

A new ‘second draw’ PPP will offer businesses additional aid

Any business that qualified and received a PPP loan in 2020 will now have the chance to apply for a second PPP loan if they meet certain criteria. Overall, the “second draw” PPP is much more targeted than the first round.

The second draw program will offer forgivable loans to small businesses, nonprofits, sole proprietors and independent contractors if they meet these conditions: 1) the company has fewer than 300 employees, and (2) the company had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. The maximum loan size for a second PPP loan is $2 million.

It is not clear if the second draw PPP program will run out of money quickly like the first PPP program originally did. Businesses should be on the lookout for a new application for the second draw program from the same financial institution where they received their original PPP loan.

Also, $25 billion in second draw PPP loans has been specifically set aside for borrowers with 10 or fewer employees or loans less than $250K in low-income or moderate-income communities.

A lot of small businesses may not have taken advantage of the employee retention tax credit this year because they took a PPP loan. You now have the opportunity before the end of the year to claim that tax credit and look back at prior quarters and count those wages.

Neil Bradley, Executive Vice President and Chief Policy Officer, U.S. Chamber of Commerce

Eligible PPP expenses have changed

To get a PPP loan forgiven, businesses needed to make sure 60% of the loan went toward payroll, and the remaining 40% could go toward expenses such as rent, utilities and interest on mortgages. Bradley notes that under the new loan terms, the 60% amount for payroll remains, but the 40% expenses have been expanded.

Eligible non-payroll PPP expenses now include:

  • Operations expenses: cloud computing services, business software, human resources and related expenses.
  • Supplier costs: payments that go to suppliers who provide essential goods.
  • Worker protection expenses: expenses that go toward keeping employees safer during COVID-19, including personal protective equipment (PPE), drive-thru windows, sneeze guards and outside dining enclosures.
  • Covered property damage costs: costs related to civil unrest that occurred in 2020 that were not covered by insurance.

Paycheck Protection Program loans are not taxable

One of the trickiest parts of the original PPP loan program was the fact the PPP loan could ultimately reduce how much a business owner could write off on their business taxes. This has been updated in the new stimulus bill.

“This is a really important change,” Bradley said. “Back when Congress first passed the PPP program, they said if the loan is forgiven, it doesn’t count as taxable income. So then along came the IRS who said it would not let you deduct business expenses that you paid for with PPP funds, which of course, is a backdoor way of taxing your PPP loan. Congress fixed this, so whether you already received a loan or are getting one in the future, it’s retroactive all the way to the beginning of the CARES Act. It says that PPP loans aren’t taxable and the IRS can’t limit your deductions as a result of the PPP loan.”

Changes to the Employee Retention Tax Credit (ERTC)

Another massive change for companies in the new stimulus bill is that companies will be able to take advantage of both PPP loans and the employee retention tax credit (ERTC). It also greatly expands the ERTC in 2021, with the new ERTC credit offering a maximum of $14,000 per employee through June 30, 2021.

Originally, the CARES Act only allowed businesses to choose PPP or ERTC. Bradley notes that businesses should take these major changes into account for year-end tax planning purposes and start using it to help them plan out 2021. If a business used and exhausted a PPP loan early in 2020, for example, they could then use the ERTC to help them with their 2020 taxes.

“A lot of small businesses may not have taken advantage of the employee retention tax credit this year because they took a PPP loan,” Bradley said. “You now have the opportunity before the end of the year to claim that tax credit and look back at prior quarters and count those wages.”

Also, ERTC eligibility was expanded as well. Employers with 500 or fewer employees are now able to claim the ERTC if they experienced a decline in gross receipts by more than 20% in any quarter of 2020 compared to the same quarter in 2019.

The ERTC has many caveats, so be sure to read our latest guide to the Employee Retention Tax Credit.

EIDL grants will reopen soon

Notably, the new law sets aside $20 billion in order to reopen the $10,000 Economic Injury Disaster Loan (EIDL) grant program. This means more small businesses could apply for an EIDL grant to help them through this challenging time.

“These are $10,000 grants that you don’t have to repay,” Bradley said. “And if you got an EIDL grant for $2,000, you can also apply for that $8,000.”

Specifically, businesses that meet the following criteria will be first in line for the $10,000 targeted EIDL grant:

  • Located in a census tract area that is eligible for a New Markets Tax Credit.
  • Experienced a more than 30% reduction in revenue during an eight-week period between 3/2/20 and 12/31/20 compared to a similar eight-week period in 2019.
  • Have 300 or fewer employees.

Businesses that do not meet all of these criteria will be able to apply for the new EIDL grants as well, but they will not have priority.

Additionally, the new law revises the rules around EIDL grants so businesses can receive a full $10,000 EIDL grant and a PPP loan without PPP loan forgiveness being reduced.

A new grant program for live venues

The new stimulus bill also sets aside $15 billion in grants specifically for live venue operators that have been impacted by the pandemic. This includes concert venues, independent movie theaters, theatrical producers, talent representatives, museums and more. Operators must have had a reduction in revenue of more than 25% to qualify.

“This is a new grant program, and you do need to demonstrate a significant reduction in revenue as a result of the pandemic,” Bradley said. “Then you can receive a grant for up to $10 million to help you pay for costs that a PPP loan would normally pay for. If you take one of these grants, you can’t also get a PPP loan. You have to choose, but the dollar amount of the grant might be higher and you don’t have to worry about applying for forgiveness.”

Bradley notes that the $15-billion cap means any company in the live event industry should get started on preparing for this right away in order to get a crack at these funds. Event operators should be ready to apply as soon as the applications open.

Notably, venue operators hoping to qualify for the live venue grants must meet specific criteria, including needing to have the majority of revenue come from ticket sales and needing to have specific equipment such as speakers or projectors. This means bars and restaurants with performance spaces, for example, would likely not qualify.

Looking for more?

Read the U.S. Chamber’s Updated Guide to Small Business COVID-19 Emergency Loans and the CO— January 5, 2021, Small Business Update.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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Published January 07, 2021