What the Latest Covid-19 Relief Bill Means for Your Small Business
Coronavirus Funding Relief Update
On December 21, 2020, the U.S. House of Representatives passed a spending bill which improves on the CARES Act passed in March and includes portions of the Heroes Act, which was passed by the House in May. Signed into law on December 27, 2020, the latest bill extends deadlines and relief monies to the March 2020 CARES Act. Here’s what it means for the coronavirus relief programs: Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL).
Paycheck Protection Program (PPP)
Established by the CARES Act, the Small Business Administration’s PPP initially provided small businesses with funds for up to eight weeks of payroll costs, including benefits. The maximum PPP loan amount was 2.5 times the business’s average monthly payroll costs, up to $10 million, and companies could receive only one PPP loan. In June 2020, the Flexibility Act was signed into law amending the CARES Act, changing PPP loan forgiveness requirements to 60% of the loan funds to be spent on payroll costs, 40% on rent, mortgage interest, and utility costs.
The bill passed in December 2020 changes PPP eligibility requirements. In addition to new funding being made available for first-time borrowers, the legislation also enables existing PPP borrowers to receive a second draw PPP loan if they have already used up the first loan by the time of disbursement of the second loan. Eligible borrowers must also have no more than 300 employees and can prove a year-over-year quarterly revenue reduction of at least 25%.
The legislation also expands the list of allowable and forgivable expenses for new and existing PPP loans for which a borrower has not yet received forgiveness. The latest coronavirus relief legislation allows four additional types of non-payroll expenses that can be forgivable.
- Software and cloud computing services used for business operations, delivery services, payroll processing, HR, sales, accounting, record documents, and inventory
- Property damage expenses (not covered by insurance) due to civil unrest (vandalism, looting, etc.)
- Necessary supplier costs paid for before the borrower received PPP loan disbursement
- Worker protection equipment expenses. PPE must comply with guidance issued by official agencies such as the Department of Health & Human Services, the Occupational Safety and Health Administration or the Centers for Disease Control, or a state or local government.
Additionally, the legislation provides for a more flexible loan forgiveness covered period. It states that the covered period begins on the loan origination date but permits all borrowers to choose the ending date (from eight to 24 weeks later). The legislation also allows eligible business owners to request an increased PPP amount, even if they have returned or started repaying some of the initial loan amount.
One new stipulation is excellent news for small businesses during tax season. Initially, the IRS deemed that business expenses customarily deducted on a business’s tax form would not be deductible if the expenses were paid for with a forgiven PPP loan. The new coronavirus relief bill amends that ruling and business expenses are now fully deductible. Businesses that filed tax returns without deducting PPP-eligible deductions can amend their returns to claim the expenses.
Loan forgiveness also has a new and simplified forgiveness procedure. For PPP loans of $150,000 or less, borrowers need only submit a one-page signed document stating the number of employees kept on payroll and an estimate of payroll-related costs. The SBA is required to develop a simplified loan forgiveness application form, and lenders must create an electronic version of the new forgiveness application and make it available to eligible borrowers.
Economic Injury Disaster Loan Program (EIDL)
The latest Covid-19 relief bill extends the EIDL application deadline to December 31, 2021.
Many of the EIDL program amendments included aim to alleviate confusion and reassure borrowers. One non-binding resolution encourages the SBA Administrator to “reduce the interest rate on EIDL loans, offer deferments up to four years on payments of interest and principal, and use discretion to provide relief to the hardest hit small businesses that received or will receive direct loans from the SBA under the EIDL program.”
Also, the bill requires more explanation from loan administrators for loans and grants that are denied. It creates a submission process for applicants to submit additional information through a loan officer rather than a lengthy appeals process.
For small businesses with less than 50 employees that have suffered an economic loss of at least 30%, the SBA is required to create a lifeline grant program where businesses can receive the lesser of 1) working capital needed for 180 days under the current EIDL calculations or 2) $50,000.
For new borrowers, the SBA cannot impose loan caps that are less than the program’s $2 million loan size. Also, the bill alleviates burdens to borrowers with a previous criminal history. For existing borrowers, the new relief package allows them to modify their loans and seek additional funds up to the $2 million maximum loan size. Finally, it creates a principal and interest payment program for existing and new physical disaster loans and EIDL loans made before February 15, 2020.
At the time of publication, the SBA has yet to publish new guidelines for the PPP and EIDL. Check for updates at Coronavirus (COVID-19): Small Business Guidance & Loan Resource