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PPP Round Two and What it Means for You

Author: Sarah Spoonholtz, Southwest Michigan Regional Chamber

Congress recently passed an end-of-year relief package that included a new and improved round of Paycheck Protection Program (PPP) loans. If you are curious about what has been changed from the first round, and how those changes affect you, here’s a brief summary of what you need to know:

First Draw: The PPP program resumed this past week, beginning with First Draw (first-time) loans to businesses that did not receive PPP in 2020. Most of the terms and conditions from round-one PPP still apply, but there are some key improvements which are described further below.

Second Draw: The brand new “Second Draw” program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan, have no more than 300 employees, and can demonstrate a 25% reduction in gross receipts or greater during the first, second, third, or fourth quarter in 2020 relative to the same quarter in 2019.

The program will make new loans available through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP through March 31, 2021 or until the new funding is exhausted. (Member Financial Institutions)

Key Changes: The relief package also contains a number of key changes that can impact businesses with existing PPP loans, as well as those applying for the first time or second time.

First, if you are a 501(c)(6), a local news media organization, or a housing cooperative, you may be newly eligible for a loan. Similarly, businesses that took advantage of the Employee Retention Tax Credit may now qualify for loans where they could not before.

They have also expanded the list of expenses that qualify for forgiveness, including operational expenses, supplier costs, worker protection expenses, and covered property damage costs. Additionally, if your loan was less than $150,000, there will now be a simplified one-page application for forgiveness.

** If your business also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant. If you were one of the many businesses who already had your PPP Loan Forgiveness amount reduced, please contact your lender to see if you are able to that amount restored. **

Seasonal employers will now have greater flexibility in picking the 12-week period (between February 15, 2019 and February 15, 2020) used to determine payroll costs which will effectively allow them to maximize their loan amount.

Businesses in the restaurant and accommodation industry are also eligible for special treatment, as the new rules will allow them to get a loan of up to 3.5 times their average monthly payroll instead of the normal 2.5 times. This will be welcome news to the many Michigan bars and restaurants nearing total financial collapse after weathering nearly sixty days of a “three-week pause” on indoor dining.

Tax Implications: Last but not least, Congress resolved one of the biggest issues from the first round of PPP – the unintended tax consequences. While it was clear that a forgiven PPP loan would not be considered income, Treasury guidance did not permit normally deductible expenses paid for by PPP funds to be deductible. In doing so, these grants were effectively still being taxed, albeit in a different way.

Thankfully, the new law corrects this by including a provision that states regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes. (And yes, this applies to past and future loans). We are still waiting on an explicit determination from the Michigan Treasury Department regarding how this will be handled on state taxes, however, they usually follow the Federal Government’s lead.
Please visit www.sba.gov or www.treasury.gov for more information and details on the Paycheck Protection Program, including the comprehensive program rules.

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