Update: President Trump signed the $900 billion aid package into law on Sunday, December 27.
If President Trump signs the latest Covid-19 relief bill into law in its current form--no guarantee given his erratic tweeting--it could usher in hundreds of billions in new aid for small businesses and individuals.
The roughly $900 billion package extends a number of crisis-era small-business programs such as the Economic Injury Disaster Loan program, providing working capital for struggling businesses, as well as the Employee Retention Credit, a tax break that amounts to 70 percent on each employee's first $10,000 in wages per quarter (for as much as $14,000 per employee).
The law, importantly, also reopens the Paycheck Protection Program. The refundable loan program aimed at small businesses will be available to both first-time PPP recipients as well as to those who've already received a PPP loan but experienced significant revenue losses in 2020. The new law further expands the slate of expenses eligible for forgiveness, and restores the deductibility of PPP expenses, among other things.
While it's unclear if the bill will become law in its current form, the small-business provisions seem unlikely to change. As such, here are six things to do now to help you gird for more aid:
1. Determine your eligibility.
Eligible business owners will have renewed access to roughly $284.5 billion through the PPP. It'll be open to companies that either didn't get a first PPP or those that already got one but also suffered significant revenue losses as a result of the pandemic, or closed and need more help. For that second draw, eligible business owners need to demonstrate a 25 percent revenue drop in any one quarter in 2020 compared with 2019. The second draw is limited to companies with 300 employees or fewer.
First-time PPP recipients will be not be held to the same revenue-loss qualification and the size standard would revert to the prior law, which allowed for companies with 500 or fewer employees to apply, says Neil Bradley, U.S. Chamber of Commerce chief policy officer. He adds, that initial PPP loans will be capped at $10 million. Borrowers for both types of loans can expect to fill out a new loan application, which may help clarify remaining questions.
2. Run the numbers.
Just like the original PPP, first authorized by the Cares Act, in March, the amount of PPP2 loans will be a product of your 2019 average monthly payroll costs multiplied by 2.5. Both first-time recipients and those applying for an additional PPP loan will need to run this calculation. All loans second-draw loans are capped at $2 million; initial PPP loans remain capped at $10 million.
An industry-specific allotment for restaurants and hotels allows them to seek forgivable loans based on 3.5 times their monthly payroll costs, up to $2 million. Seasonal businesses would base their calculation on their average monthly payroll costs for a 12-week period between February 15, 2019 and February 15, 2020.
3. Get your books in order.
While this is always a good idea, Ami Kassar, the founder and CEO of MultiFunding, a small-business loan adviser based in Ambler, Pennsylvania, notes that this time in particular, lenders and the Small Business Administration may want to see proof of your losses. The first round of stimulus merely required businesses to certify that they needed the money because of economic uncertainty. Some months later, Kassar notes, the rules changed and borrowers were asked to prove the necessity of the loan if they took one for more than $2 million.
The new bill accounts for this. All borrowers are asked to retain employment records relevant to their application for four years and other documentation for three years. However, those with loans under $150,000 are specifically not required to submit supporting documentation or certification previously described for loans under that amount. "For them, it generally operates like blanket forgiveness," says Bradley, referring to a call among some lawmakers to allow for the automatic forgiveness of loans under a certain amount.
4. Revisit your PPP forgiveness application.
You may also want to revisit your first PPP's forgiveness calculation. The majority of PPP recipients likely used their loan proceeds so they would be fully forgiven--that is, they spent 60 percent of their loan on payroll expenses, including the cost of benefits, while the remaining 40 percent went to fund-eligible expenses like mortgage interest and some utilities. But some didn't. Those that got PPP loans for which they don't expect to receive full forgiveness should read into the now comprehensive list of expenses covered by the new law. In this round, everything from "supplier costs"--think cost of goods sold or logistics expenses--to personal protective equipment and investments in facility modifications like retrofitting an HVAC system could become eligible expenses.
There's a big caveat. According to the bill, borrowers that have already applied for forgiveness and received a decision before the law's enactment are prohibited from reapplying for forgiveness.
Bradley further notes that the forgiveness window will also expand, and as such you might want to take into account additional covered expenses in your calculation. September 30, 2021 is listed as the forgiveness period end date.
5. Recalculate business expense deductions.
The new bill clarifies a major outstanding question under the Cares Act: Are expenses paid using forgiven PPP funds tax deductible? This law says yes, according to Bill Smith, managing director for CBIZ MHM's National Tax Office in Bethesda, Maryland. He notes the statute change directly contradicts a ruling by the IRS, which affirmed on two separate occasions that forgiven PPP expenses are not tax deductible. "Why should you take a deduction if you got free money? Secretary Mnuchin said this was tax 101," says Smith. But he adds, that was the original intent of the Cares Act, and this new bill codifies it. As such, you may want to revisit your year-end tax plan and consider revising your estimated tax payments and bonuses.
6. Call your lender.
San Diego State University finance professor Stephen Brincks points out that if the PPP2 is anywhere near as popular as the first round of PPP--when funds ran out in two weeks--you'd better connect with your lender, fast. "If you were able to work with your financial institution or your bank to go through the application the first time," he says, "I would immediately reach out to them and say, 'OK, can you help me get this money the second time around?'" He notes further that funds could go quickly, as the $284.5 billion program is less rich than the first round, which offered $349 billion to businesses, and it'll be open to certain nonprofits and other types of businesses that weren't included in the Cares Act. Another question to ask: If you were in line to get a PPP during the first round but didn't get one before the program ended, will your application get priority?