Applying for a new PPP loan?  Boyer & Ritter can help

The announcement of $284 billion for additional Paycheck Protection Program loans is welcome news to many businesses.

Starting today, January 11, lenders can process applications from businesses and nonprofits seeking their first-ever PPP loan. On Wednesday, they can accept requests from entities that have used their initial funding and seek a second loan.

• Subject to availability, PPP loans will be available through May 31. Updated March 30, 2021: President Biden signs law extending PPP for small businesses until May 31.

While further regulations regarding the $284 billion in additional PPP funding included in the recently passed Consolidated Appropriations Act of 2021 (the Act) are sure to come, the Small Business Administration issued some initial direction last week.

The economic and tax relief provisions of the Act are complex and need to be applied to specific factual situations. If you would like our assistance with evaluating particular tax and/or economic relief measures under Act, the Boyer & Ritter team is ready to help.

Here are the highlights of the Act and SBA’s recent guidance:

• You can deduct business expenses paid with PPP funds on your federal taxes: It is important to note that while the relief act helps with your federal taxes, not all states conform with the federal tax code. Some states may continue to tax the loan forgiveness.

• Limits on businesses seeking a second PPP loan: Second-draw PPP loans cannot exceed $2 million and are limited to small businesses with 300 or fewer employees. Additionally, companies have to demonstrate a loss of 25 percent of gross receipts in any standard calendar quarter (Jan-Mar; Apr-Jun; Jul-Sept; Oct-Dec) during 2020 compared to the same 2019 calendar quarter.
• Expands what expenses are forgivable: In addition to payroll, rent, utilities, and interest on mortgages allowed from the program’s start, the relief act added the following forgivable expenses:
  • Personal protective equipment for employees
  • Costs associated with outdoor dining
  • Supplier costs
  • Expenditures for software and cloud computing
  • Additional human resources and accounting needs
  • Property damaged during 2020 public disturbances not covered by insurance
    • NOTE: Payroll costs must still account for at least 60 percent of your loan forgiveness amount.
• Greater flexibility with the loan forgiveness covered period: Borrowers can now choose the loan forgiveness covered period – between 8 to 24 weeks.

• Simplified forgiveness process: The SBA is preparing a simplified forgiveness application for businesses borrowing between $50,000 to $150,000. (Those borrowing less than $50,000 can already use a streamlined process by filling out SBA Form 3508S.)
• Permits PPP Borrowers to Claim the Employee Retention Tax Credit: PPP loan recipients will now be allowed to claim the Employee Retention Credit on wages paid between March 12 and Dec. 31, 2020. Additionally, PPP recipients can receive the credits between Jan. 1 and June 30, 2021. These credits can be worth up to $7,000 per employee per calendar quarter in 2021.
  • NOTE: Wages that have already qualified for PPP loan forgiveness are not eligible for ERTC. Also, different guidelines apply to credits claimed in 2020 as opposed to 2021.
• EIDL advances no longer deductible from PPP loan forgiveness: The up to $10,000 advances that were part of Economic Injury Disaster Loans (EIDLs) no longer count against PPP loan forgiveness. Additionally, the $10,000 advance is not taxable income.
• EIDL refinancing available: Some borrowers receiving a PPP loan for the first time may be eligible to refinance their existing EIDL loan if it was used for purposes other than paying payroll costs and other eligible PPP expenditures.

For more information about the relief act, visit https://www.cpabr.com/article-New-PPP-Loans-Relief-Package

A word of caution when deciding to apply for a PPP loan

Keep in mind that PPP loans are specifically targeted for smaller businesses and nonprofits struggling to make payroll and keep the lights on and doors open. Before you consider another round of loan applications, you need to ask yourself a critical question: Does my business really qualify for the money?

Remember, part of the PPP loan program requires businesses to certify that “current economic uncertainty makes this loan necessary to support the ongoing operations of the applicant.”

True, most businesses can show a 25 percent decrease in gross revenue during a calendar quarter in 2020 compared to 2019. But if your business seems to have weathered the COVID-19 storm without significant problems outside of losses during Q2, the self-certification becomes important.

For example, if a company’s current and forecasted revenues are good enough to sustain the business, pay employees, and even make a profit – albeit not what might be earned under normal circumstances – the certification of “current economic uncertainty” is worth deeper consideration before applying for another PPP loan, to avoid potential penalties.

If the SBA finds a company did not make the certification of need in good faith, borrowers will have to repay the loan and not be eligible for any loan forgiveness. Indeed, in April, Treasury Secretary Steven Mnuchin warned companies they could suffer consequences if they could not certify that they were facing economic injury.

Bottom line

As many of the factors influencing whether you qualify or should apply for the new round of PPP funding are organization-specific and may have legal implications, we encourage you to consult with your advisor if you have questions regarding your organization’s eligibility.

We recognize that these are challenging times, and the Boyer & Ritter team can provide coronavirus-related advisory support. To learn more about engaging us for business relief assistance, including PPP Loan Forgiveness Support Services, please contact us HERE.