By Teri Kaye
We are getting a lot of calls and emails from clients about the new round of PPP Loans and about forgiveness of the first round. Certain banks are opening portals this week and more will open in the weeks to come.
With regard to Forgiveness, we are expecting the SBA to announce expedited procedures for small loans by the end of the month.
With the IRS rescinding their prior guidance that the expenses could not be deducted, we now know that for 2020, the expenses paid with the loans (even forgiven amounts) are deductible in 2020. One of the big open questions is whether the forgiven amount, which is tax-exempt income and creates tax basis for shareholders and partners, will be treated as tax-exempt income in 2020 or 2021, or that will depend on a date (application for forgiveness, granting of forgiveness, or matched to the receipt or usage of the funds).
The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan. Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
Full Forgiveness Terms
Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:
Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan;
The loan proceeds are spent on payroll costs and other eligible expenses; and
At least 60 percent of the proceeds are spent on payroll costs.
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- Relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made or calendar year 2019.
Maximum Loan Amount and Increased Assistance for Accommodation and Food Services Businesses
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector (NAICS 72), the maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.
When to Apply
Borrowers can apply for a Second Draw PPP Loan until March 31, 2021
Loans Greater than $150,000
The applicant must also submit documentation to adequately establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019.
Quarterly Financial Statements from 2019 & 2020
Loans Less than $150,000
For loans with a principal amount of $150,000 or less, documentation to substantiate the reduction of revenues is not required at the time the borrower submits its application for a loan but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act.
Please reach out to your contact at Daszkal Bolton or contact us if you have questions about this. We are here to help.
About the Author
Teri Kaye serves as the Tax Services Leader/ Partner-In-Charge of the Fort Lauderdale Office, and sits on the firm’s Executive Committee.