As you are probably aware, a new federal stimulus package became effective earlier this week that made important changes to the Paycheck Protection Program (PPP). The changes impact existing PPP loans and also authorize a new round of PPP loans for new borrowers and those who already received a PPP loan.
The following is an alert from Acara Partners’ attorneys Brenner, Saltzman & Wallman LLP to help keep our clients informed of the new changes to the PPP as well as information about other items in the new law that might be of particular interest to businesses. The following are their key takeaways.
1. Additional PPP loans may be available. If you have used or expect to use all of the proceeds of your original PPP loan, a second-round PPP loan may be available to you. Qualifying individuals or entities that did not already receive a PPP loan may be eligible for the original type of PPP loan or this second round PPP loan. All PPP loan applications must be submitted by March 31, 2021.
2. Eligibility for the second round PPP loan is more restrictive. The PPP borrower must have experienced a 25% reduction in revenue when comparing any calendar quarter in 2020 to the same quarter in 2019. Generally, the maximum number of employees of a PPP borrower is reduced from 500 to 300.
3. PPP loan forgiveness rules are more favorable. These new rules apply to existing PPP loans (if a loan forgiven determination was not previously made by the SBA) and the second round PPP loans. The new rules:
a. expand the types of eligible expenses that can serve as the basis for loan forgiveness;
b. allow a PPP borrower to select any time period between 8 and 24 weeks as the measuring period for the amount of those eligible expenses; and
c. simplify the loan forgiveness process for a PPP borrower with a loan of $150,000 or less.
4. Finally, some clarity that PPP loan forgiveness will have no federal income tax impact. Forgiveness of a PPP loan will not result in taxable income to the PPP borrower and the expenses that served as the basis for loan forgiveness are tax-deductible by the borrower. This applies to the original PPP loans as well as the second round PPP loans. Remember to take this change into consideration when making your deposits for your estimated 4th quarter income taxes.
5. There are appealing terms on the repayment of the balance of any new PPP loan that is not forgiven. This balance will bear interest at 1% per annum and will be repayable in monthly installments from the date the amount of the remaining loan balance is determined until the 5th year anniversary of the funding of the new PPP loan.
6. Act quickly as supply may be limited. The maximum aggregate amount of the new PPP loans is $284 billion. To put that amount in context, $420 billion of PPP loans of $2 million or less were previously made under the Paycheck Protection Program. We expect SBA guidance on the new PPP loans to be published and the reopening of loan portals by most PPP lenders to occur during the first 2 weeks of January.
These and otherCOVID-19 resources can also be here on the Acara Blog and at Brenner, Saltzman & Wallman LLP’s COVID-19 Resource page.
