Dec 22, 2020 - 1:00pm

Guide to Small Business COVID-19 Emergency Loans

What Small Businesses Need to Know About the New Pandemic Relief Package – Changes to PPP and More

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As part of an end-of-year pandemic relief package, Congress has passed several changes to the Paycheck Protection Program (PPP) and created a “Second Draw” PPP for small businesses who have exhausted their initial loan. Other changes impact eligibility for initial PPP loans, the loan forgiveness process, and the tax treatment of PPP loans.  

Congress has also made changes to other programs – including Economic Injury Disaster Loans (EIDL Program), the Employee Retention Tax Credit, a Venue Grant program, and SBA loan programs –that will benefit small businesses. Here’s everything small business owners need to know now:  

Contents: 

1. How Do New Changes Impact My Existing PPP Loan? 

 

Tax Treatment: The new law overturns the IRS ruling and provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans). 

Expanded List of Expenses Qualifying for Forgiveness: The list of expenses that PPP funds can be used for that qualify for loan forgiveness has been expanded to include: 

  • “operations expenses” defined as payments for business software and cloud computing services and other human resources and accounting needs that facilitate business operations; 
  • “supplier costs” defined as payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods, in effect at any time; 
  • “worker protection expenses” defined as operating or capital expenditures to comply with public health guidance related to COVID-19, including things like drive-through windows and sneeze guards and the purchase of personal protective equipment (PPE); and 
  • “covered property damage costs” defined as costs related to property damage or looting due to public disturbances in 2020 that are not covered by insurance or other compensation. 

Remember: It is still the case that not more than 40% of the forgiven amount can be for non-payroll costs, which may limit how much of your loan can be forgiven. 

Loan Forgiveness Reduction: If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant. 

Loan Forgiveness Period: The period for which expenses count toward loan forgiveness will begin on the date of loan origination and end on a date of your choosing that is between 8 and 24 weeks after origination. 

Simplified Application: If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness. (top)


2. I Exhausted My Initial PPP Loan, How Does This Help Me? 

 

The brand new “Second Draw” program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan. The program will make new loans through March 31, 2021 or until the new funding is exhausted. 

Eligibility: You are eligible for a second draw loan if you have exhausted your first PPP loan and  

  1. you have no more than 300 employees, and  
  2. you have experienced a greater than 25% reduction in gross receipts during the first, second, third, or fourth quarter in 2020 relative to the same quarter in 2019. 

Entities with significant ties to China are ineligible for a second draw loan. 

Loan Amount: The maximum loan amount is the average monthly payroll costs for the entity during the 12 months prior to the loan or, at the election of the borrower, 2019 multiplied by 2.5 (or 3.5 for employers in the accommodation and food service industry). 

Seasonal employers utilize average monthly payroll costs for a 12-week period between February 15, 2019 and February 15, 2020.  

A loan may not exceed $2 million. 

Loan Forgiveness: The amount of loan that can be forgiven is the lesser of: 

  1. Costs incurred or expenditures made between the date of the origination of the loan and ending on a date of your choosing that is between 8 and 24 weeks after origination for: (a) payroll costs, (b) qualifying mortgage interest or rent obligations, (c) covered utility costs, (d) covered operations costs, (e) covered property damage, (f) covered supplier costs, and (g) covered worker protection expenditures; or 
  2. Payroll costs for the same period divided by 0.60 (this serves as a cap on the total loan forgiveness to ensure that at least 60% of the total amount forgiven is for payroll costs). 

Like original PPP loans, the amount of loan forgiveness can be reduced if the borrower has (1) reduced the number of employees or (2) employee salaries by more than 25%. However, the same safe harbors that apply to original PPP loans apply to Second Draw loans. Learn more about these Safe Harbors in our Guide for PPP Loan Forgiveness

Set-Asides: $25 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood. (top)


3. What If I Never Received a PPP Loan? 

 

For new PPP applicants, the loan process will largely remain the same (check out our original PPP Guide) with a few major changes:  

  • The PPP program is open through March 31, 2021 or until the new funding is exhausted. 
  • If you are a 501(c)(6), a local news media organization, or a housing cooperative you may be newly eligible for a loan.  
  • You may qualify even if you took advantage of the Employee Retention Tax Credit. 
  • If you are a publicly traded company, you are now prohibited from receiving a loan.
  • Group insurance payment can be included in your payroll costs when determining your maximum loan amount (see Step 3 in our original Guide). 
  • If you are a seasonal employer, you have greater flexibility in picking the 12-week period between February 15, 2019 and February 15, 2020 used to determine your payroll costs and thus your maximum loan amount. 

New borrowers have until the end of the covered period of their loan (up to 24 weeks after origination) to restore a reduction in their number of employees or reduced wages in order to avoid having their loan forgiveness reduced.  Note: The safe harbors for when an employer cannot find qualified employees or where complying with COVID related safety measurers prevents a return to February 2020 levels of business activity and staffing remain in effect. Learn more in our Guide for PPP Loan Forgiveness

Set-Asides: $35 billion is set-aside for first time borrowers and $15 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood. 

Remember: The other changes regarding eligible uses of PPP funds and loan forgiveness discussed above will also apply to your new loan. (top)


4. Which Other Programs That May Help My Small Business Have Been Changed or Updated? 

 

Expanded Employee Retention Tax Credit: The new law significantly expands the employee retention tax credit beginning on January 1, 2021. The credit expires on June 30, 2021. The prior credit was 50% on $10,000 in qualified wages for the whole year (or a maximum of $5,000 per employee). The new credit is 70% on $10,000 in wages per quarter (or a maximum $14,000 per employee through June 30th).  

Prior to 2021, the employee retention tax credit applied only to an employer who experienced a decline in gross receipts of more than 50% in a quarter compared to the same quarter in 2019. For 2021, eligibility is now expanded to include employers who experienced a decline of more than 20%. 

In addition, the employee cap under which it is easier to claim the tax credit has been raised to 500 employees from 100 employees. Now, employers with 500 or fewer employees can claim the credit for wages to paid to employees irrespective of whether the employee is providing services.  

Employers can now also receive both the Employee Retention Tax Credit and a PPP loan, just not to cover the same payroll expenses. 

Remember: This is a refundable tax credit. See the Chamber’s original Guide to the ERTC for more information.  

EIDL Grants: The new law reopens the $10,000 EIDL Grant program. Priority for the full amount of the EIDL grant will be given to small businesses with no more than 300 employees, located in low-income neighborhoods, who have experienced a 30% reduction in gross receipts during any 8-week period between March 2, and December 31, 2020 compared to a comparable 8-week period before March 2. If you meet this description and received a grant that is less than $10,000 you can reapply to receive the difference. 

Grants for Shuttered Venue Operators: The law creates a new $15 billion grant program for eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives that have experienced at least a 25% drop in revenue. 

Grants are equal to the lesser of $10 million or 45% of gross earned revenue in 2019. Grants must be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.  

If you receive a grant you may not apply for a new PPP loan. 

SBA Loan Debt Forgiveness: The new law resumes the government payment of monthly principal and interest on small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. Borrowers with loans approved by the SBA prior to the CARES Act will receive an additional three months of payments beginning in February of 2021. Those payments will be capped at $9,000 per borrower per month.  

After that, certain borrower will receive an additional five months of payments, including: borrowers with SBA microloans or 7(a) Community Advantage loans or borrowers with any 7(a) or 504 loan in hard hit sectors: educational services; arts, entertainment and recreation; food service and accommodation; support activities for mining, and oil and gas extraction; apparel manufacturing; clothing and clothing accessories stores; sporting goods, hobby, book and music stores; air transportation; transit and ground passenger transportation; scenic and sightseeing transportation; publishing industries; motion picture and sound recording; broadcasting; rental and leasing services; and personal and laundry services. 

New SBA loans made or approved between December 22, 2020 and September 30, 2021 will receive six months of government payment of principal and interest, also capped at $9,000 per month. (top)

Discover more resources and funding sources to help your small business on our Save Small Business Resources Center.  


Past Documentation on PPP Relief

UPDATE: The PPP application deadline has passed, but we are continuing to advocate for additional targeted relief for small businesses and industries hit hardest by the pandemic.

 

Click here to discover more resources and financial support programs


For help finding a PPP lender, please click here to visit SBA’s Lender Match tool. If you have received a PPP loan and are seeking guidance on forgiveness, please click here.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $660 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. 

Importantly, these PPP loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward.

The administration’s PPP program guidelines can be found at www.treasury.gov, and the U.S. Small Business Administration's search tool to find a bank that offers PPP loans can be found at https://www.sba.gov/paycheckprotection/find.

The U.S. Chamber of Commerce has issued this step-by-step guide to help small businesses and self-employed individuals check eligibility and prepare to apply for a loan.


Stay informed!

Sign up to receive new and updated COVID-19 resources and guides as they are released.

 

 

Here are the questions you may be asking—and what you need to know.

You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating.

1. Am I eligible?

You are eligible to apply for a PPP loan if you are:

  • A small business with 500 or fewer employees
  • Defined as “small” by SBA Size Standard that allows for higher employee threshold or is revenue based; or
  • A small business with maximum tangible net worth up to $15 million and the average net income for full 2 fiscal years prior to application does not exceed $5 million
  • A 501(c)(3) with 500 or fewer employees
  • A  sole proprietor, independent contractor, or self-employed
  • A Tribal business concern that meets the SBA size standard
  • A 501(c)(19) Veterans Organization that meets the SBA size standard

In addition, some special rules may make you eligible:

  • If you are in the accommodation and food services sector (NAICS 72), the 500-employee rule is applied on a per physical location basis
  • If you are operating as a franchise or receive financial assistance from an approved Small Business Investment Company the normal affiliation rules do not apply
  • Small businesses that have minority shareholders (private equity or venture capital) can still qualify if those stakeholders relinquish rights

 

2. What will lenders be looking for?

Borrowers will need to complete the Treasury Department's PPP Loan Application (PDF) and payroll documentation.

Lenders will also ask you for a good faith certification that:

  1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
  2. The borrower will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
  3. Borrower does not have an application pending for a loan duplicative of the purpose and amounts applied for here
  4. From February 15, 2020 to December 31, 2020, the borrower has not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold SBA Disaster Loans into a PPP loan)

If you are an independent contractor, sole proprietor, or self-employed individual, lenders will also be looking for certain documents (final requirements will be announced by the government) such as payroll tax filings, Forms 1099-MISC, and income and expenses from the sole proprietorship.


What lenders will NOT look for
  • That the borrower sought and was unable to obtain credit elsewhere.
  • A personal guarantee is not required for the loan.
  • No collateral is required for the loan.

 

3. How much can I borrow?

Loans can be up to 2.5 x the borrower’s average monthly payroll costs, not to exceed $10 million.

  • Payments deferred for six months
  • 1.00% fixed interest rate
  • Loan is due in two years if issued before June 5th.
  • Loan is due in five years if issued after June 5th.
How do I calculate my average monthly payroll costs?

INCLUDED Payroll Costs
  1. For Employers: The sum of payments of any compensation with respect to employees that is a:
    • salary, wage, commission, or similar compensation;
    • payment of cash tip or equivalent;
    • payment for vacation, parental, family, medical, or sick leave
    • allowance for dismissal or separation
    • payment for group health care and retirement benefits
    • payment of state or local tax assessed on the compensation of the employee
  2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The net income not more than $100,000 in one year.
EXCLUDED Payroll Costs
  • Compensation of an individual employee in excess of an annual salary of $100,000 (Note: employer contributions to healthcare and retirement benefits are not part of amount deemed in excess of $100,000 annual salary)
  • Employer portion of payroll taxes
  • Any compensation of an employee whose principal place of residence is outside of the United States
  • Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act

NON SEASONAL EMPLOYERS:
Maximum loan = 2.5 x Average total monthly payroll costs incurred during 2019 or one year prior to the loan date

For businesses not operational in 2019:
2.5 x Average total monthly payroll costs incurred for January and February 2020

SEASONAL EMPLOYERS:
Maximum loan = 2.5 x Average monthly payroll for an 8-week period between February 15 or March 1, 2019 and June 30, 2019

  • Payments deferred for six months
  • 1.00% fixed interest rate
  • Loan is due in two years if issued prior to June 5th
  • Loan is due in five years if issued after June 5th. 

Borrowers can refinance a SBA Economic Injury Disaster Loan (EIDL) into a PPP loan

The EIDL amount is added to the payroll calculation but may not exceed the $10 million PPP loan.

 

4. Will this loan be forgiven?

Borrowers are eligible to have their loans forgiven.

How Much?

A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period (or 24-week period for loans issued after June 5th) beginning on the date of the origination of the loan:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent and utility payments
  • Interest on other debt obligations incurred before February 15, 2020

NOTE: Not more than 40% of the forgiven amount may be for non-payroll costs.


Free Forgiveness Calculator 

The Association of International Certified Professional Accountants (AICPA) developed a PPP forgiveness calculator that can be found here.


How could the forgiveness be reduced?

The amount of loan forgiveness calculated above is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Specifically:

Reduction based on reduction of number of employees

Reduction based on reduction in salaries

 

What if I bring back employees or restore wages?

Reductions in employment or wages that occur between February 15, 2020 and April 26, 2020 (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by December 31, 2020 the borrower eliminates the reduction in employees or reduction in wages.

Private lenders will ultimately issue PPP loans based on guidance from the SBA and Treasury Department. More information, including from lenders, should be available once the guidance is issued.

What's next?

For more guidance and resources for small businesses, visit www.uschamber.com/co

Download this Guide

 

Special thanks to Facebook, our partner on these guides and resources. Visit the Facebook Business Resources Hub for more resources and information.

facebook logoSpecial thanks to Facebook, our partner on these guides and resources. Visit the Facebook Business Resources Hub for more resources and information.