Published in Small Business
More flexibility comes with latest round of PPP loans ILLUSTRATION: KAYLEE VAN TUINEN

More flexibility comes with latest round of PPP loans

BY Sunday, January 17, 2021 06:32pm

The new round of federal Paycheck Protection Program loans includes a number of changes from the prior funding intended to aid small businesses hurting from the COVID-19 pandemic.

As with the first round last spring and summer, borrowers working through a lender can again use PPP funding from the U.S. Small Business Administration to pay operating expenses.

The new $284 billion PPP round extends eligible expenses to property damage incurred in last summer’s civil unrest that was not covered by insurance, supplier costs and worker protection expenditures. As well, eligible expenses now include costs to adapt to the pandemic such as facility modifications, software and cloud computing and delivery services.

“I think what the SBA is trying to do is make sure that if we spent some of these PPP funds on other types of expenses, then it’s going to be OK,” Dave Echelbarger, managing partner at EHTC CPAs & Business Consultants, said last week during a Grand Rapids Area Chamber of Commerce virtual town hall on the new PPP round.

“The idea here is to make sure those expenses aren’t going to put them in trouble in any way, shape or form,” Echelbarger said.

Expenses covered under a PPP loan also are now tax deductible, and forgivable loans are not considered taxable income.

The SBA opened applications for the new PPP round last week. Small businesses can apply for a forgivable loan through March 31.

The PPP is open to small businesses that received a loan in last year’s first round, have 300 or fewer employees, and can show a 25 percent gross revenue decline from a quarter in 2019 to the same period in 2020.

As well, small businesses with 500 or fewer employees that are seeking their first PPP loan can apply, as can sole proprietors, independent contractors and people who are self-employed, and nonprofits filed as 501(c)(6) organizations. That includes trade associations, “as long as they are not strictly related to lobbying activities,” John Pridnia, managing principal in West Michigan for accounting and advisory firm Rehmann, said last week during a Small Business Association of Michigan webinar.

The new PPP round also has a simpler application for loans of $150,000 or less. Borrowers only need to state that they used the money for eligible expenses and maintain documentation for four years.

“The forgiveness application started (last year) with a fairly in-depth reporting of what you needed, how you met the test (and) everything else. They came out with a simplified process basically attesting you used the funds for the right reasons,” Pridnia said.

‘Another bridge’

The new PPP round “is just another bridge to save those small businesses” as vaccines are now getting distributed, Rob Scott, administrator for the SBA’s Great Lakes region, told MiBiz in an interview.

“We certainly want to help as many small business owners and save as many jobs out there as possible,” Scott said.

The SBA in the first round of the PPP last year approved 5.2 million loans totaling $525 billion through the end of the program on Aug. 8. In Michigan, more than 128,000 small businesses received PPP loans totaling $16 billion.

The SBA expects what Scott called a “mixed” and more targeted demand for loans in the new round. Different states have different COVID-19 restrictions in place now, he said, which could affect the type of applicants.

The restaurant and hospitality industries will undoubtedly have the largest demand for aid, Scott said. In the Great Lakes region, Michigan will continue to prohibit indoor dining until at least Feb 1.

“It’s very different from before,” Scott said. “Before, everyone needed it because we were completely shut down as a country. Restaurants were shut down, so the demand was astronomical in the first round. In the second round, there is demand there but it’s different. The restaurants in Michigan need it bad.”

In an annual survey by the Grand Rapids Area Chamber of Commerce, nearly half of more than 700 members responding said they need financial assistance to remain viable. Nearly a quarter of members responding to the survey said they were “at risk of closing under current conditions within the next 12 months,” according to the Grand Rapids Chamber.

“This information is concerning and shows a huge threat to our economy,” said Andy Johnston, vice president of government affairs at the Grand Rapids Chamber.

PPP applicants can seek up to 2.5 times their average monthly payroll costs for a maximum $2 million loan. Borrowers have to spend at least 60 percent of the money over an eight- to 24-week period on payroll costs. If they go 24 weeks, they should find it “pretty easy to get to that calculation and have 60 percent of your fund spent on payroll,” Echelbarger said.

“Certainly other costs will make up that 40 percent, including the additional costs that they allow,” he said.

Outside of PPP loans, the pandemic relief legislation that Congress enacted last month also allows the SBA to provide borrowers payment deferrals for six months on new and existing loans made under the agency’s 7(a) lending program, up to $9,000 a month, Scott said. The legislation also increased the federal government’s guarantee on the loans to 90 percent from 75 percent, he said.

Targeted relief

In enacting a new PPP round with the Consolidated Appropriations Act that passed in December, Congress also created special carve outs that include $10 billion for loans for “the smallest of small businesses” and sole proprietors, plus $15 billion for a separate grant program for entertainment venues that have been closed during the pandemic, Scott said.

However, entertainment venues cannot get both a PPP loan and a Shuttered Venue Operator grant, Pridnia said.

Hotels and restaurants that were closed or have had their operations limited because of the pandemic and state-ordered restrictions can apply for a PPP loan of 3.5 times their average monthly payroll cost, “which is pretty significant and really helps those businesses that have been hit the hardest, especially restaurants shut down for many, many weeks and months here in Michigan, so that’s certainly a big help,” Echelbarger said.

Congress also changed eligibility to the federal employee retention tax credit. In the prior PPP round, borrowers could not claim the tax credit, said Mike Young, senior tax manager at EHTC.

The “huge change” lowers the hurdle and makes the employee retention tax credit more attractive to small businesses that got or are applying for PPP funding, and is “one that we feel will really roll this out to a whole host of employers that otherwise were thinking, ‘Hey, I took my PPP funding and that’s it. That was the end of my decision tree, if you will,” Young said in the Grand Rapids Chamber’s virtual town hall.

“Now this is really sparking that conversation up again,” Young said. “Prior to the (Consolidated Appropriations Act), we were looking at this as an either-or. So going into applying for the PPP loan, companies were running the analysis as to whether or not they were better off to take the employee retention credit, or receive a loan under the PPP.”

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