January 5, 2021

PPP2 Loan FAQ: Applying for the Second Round of Funding

The $2.3 trillion Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020 bringing much-needed relief to the country, including a $900 billion COVID-Related Tax Relief Act of 2020 (COVIDTRA). Among the many relief provisions in COVIDTRA, the legislation set aside $284 billion for another round of PPP Loans (PPP2). Under COVIDTRA, PPP2 loans will be available to both first-time qualified borrowers and to businesses that previously received a PPP Loan. Below, we address commonly asked questions about the second round of PPP funding.

When can I apply for a loan?

The Small Business Administration (SBA) has seventeen days after the enactment to issue guidance. Business owners may be able to apply for new PPP loans as early as mid-January.

How much money can I borrow?

A borrower may receive a loan up to 2.5 times the monthly average payroll costs in the 12-month period prior to the loan or in the prior calendar year. For PPP2, businesses in the hospitality industry, which includes accommodation and food services operations with NAICS codes starting with 72, can receive up to 3.5 times their average monthly payroll costs. As with PPP loans, seasonal employers can use alternative calculations to determine their maximum loan amount. The maximum amount of a PPP2 loan cannot exceed $2,000,000.

Who is eligible as a first-time borrower for a PPP2 loan?

If a business did not already apply for and receive the first round of PPP funding, the following first-time borrowers are eligible to receive a PPP2 loan:

  • Businesses with 500 or fewer employees
  • Sole proprietors, independent contractors and eligible self-employed individuals
  • Accommodation and food services operations with NAICS codes starting with 72, such as restaurants and ­­­­hotels, with fewer than 300 employees per location
  • Not-for-profit organizations
  • Must have been in business by February 15th, 2020. This is a new eligibility requirement

If my company previously received a PPP Loan, can I apply for a PPP2 loan?

Businesses that previously received PPP loans can apply for PPP2 loans if they meet the requirements below:

  • 300 or fewer employees
  • Used or will use the full amount of their first PPP loan
  • Can show 25% gross receipts decline in any 2020 quarter compared with the same quarter of 2019

What are the terms of PPP2 loans?

Most of the PPP2 loan terms are similar to the terms of the first round of PPP funding:

  • Loan Amount: Similar to the original PPP Loans, a borrower may receive a loan up to 2.5 times the monthly average payroll costs in the 12-month period prior to the loan or in the prior calendar year. For PPP2 loans, accommodation and food services operations with NAICS codes starting with 72 can receive up to 3.5 times their average monthly payroll costs.
  • Maximum Loan Amount: The maximum amount of a PPP2 loan cannot exceed $2,000,000. This is down from the $10,000,000 maximum amount of PPP loans.
  • Loan Forgiveness: PPP2 loans are also eligible for loan forgiveness. For any loan up to $150,000, the loan will be forgiven if the borrower submits a one-page online or paper form listing the loan amount, number of employees, and the amount spent on payroll. 

How can PPP2 loan funds be used?

Under the original PPP, funds could be used for payroll, benefits, rent, utilities, mortgage interest and transportation costs.

The new bill is expanded and allows for additional expenses, including:

  • Covered operations expenditures – business software, payroll expenses, HR, sales and billing or accounting
  • Covered property damage costs – costs related to property damage due to public disturbances that occurred during 2020 that were not covered by insurance
  • Covered supplier costs – expenses for goods that are essential to the operation and were purchased before the covered period or are perishable goods
  • Covered worker protection expenditures – expenditures related to adapting the business to comply with federal, state, or local government guidelines related to COVID-19 standards of sanitation, social distancing, or any other worker or customer safety
  • Insurance payments – PPP2 clarifies that in addition to group health insurance group life, disability, and vision or dental insurance are included in the payroll definition.

The additional eligible expenses also apply to original PPP loans still outstanding. Similar to the first round, 60% of PPP2 funds will need to be used for payroll and 40% can be used for non-payroll expenses.

How long do I have to spend the PPP2 funds?

Borrowers can choose either an 8 or 24-week period as the covered period of expenses from the loan origination date, similar to the first round of PPP loans. The covered period for both PPP and PPP2 loans begins on the date the loan proceeds are received by the borrower and ends on a date selected by the borrower that falls between 8 weeks after the funds were received and 24 weeks after the date the funds were received. It is not necessarily 8 weeks or 24 weeks for the covered period anymore. We’re awaiting further SBA guidance on how this affects current PPP borrowers who have not yet applied for forgiveness.

Are expenses paid using PPP2 loans tax deductible?

COVIDTRA states that business expenses that would otherwise be tax-deductible, which are paid with forgiven PPP or PPP2 loan proceeds, remain tax-deductible.

Our advisors are closely following COVID-19 relief efforts and will continue to publish more questions and insights to keep you informed. Visit our COVID-19 Resource Center for more resources. To discuss your situation and recovery options, contact an Anders advisor below. Tune in to our video series PPP with Paul and Dan to learn more about the Paycheck Protection Program.

Nicholas E. Dall was a contributor to this post.

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