January 19, 2021

Using PPP2 Funds for Technology Modernization via the Cloud

Round two of the Paycheck Protection Program (PPP) is upon us and Anders has been closely analyzing the contents to help companies identify strategies for maximizing the impact of their PPP funds.

While the majority of your PPP funds still need to be spent on payroll (60%), one of the biggest changes in the new round of PPP is the ability to spend up to 40% of funds on other types of pandemic related expenses. Specifically, the “covered operations expenditures” category allows PPP funds to be used to pay for cloud services that run your business.

Investing in Technology

Many businesses struggled to embrace the sudden shift to remote work caused by the pandemic in Spring 2020. In many cases these companies were constrained by their historical lack of investment in technology. Suddenly companies who were still using dated, on-premise technology were at a significant disadvantage compared to their cloud-enabled competitors.

PPP2 creates an interesting opportunity for small to midsize companies to modernize their operations via the use of cloud technology. The government is encouraging companies to invest in cloud solutions to improve business continuity and become more efficient.

What’s Covered?

The PPP defines “covered operations expenditures” as follows:

payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses;”

If we want to exercise this ‘cloud’ flexibility in the PPP loan, how do we interpret what qualifies as an expenditure?  The vast majority of cloud-based technology should qualify under the “cloud computing service that facilitates business operations” definition. Of course, be sure to discuss this with your PPP lender to confirm.

Many core ERP or CRM applications are cloud-based now and would qualify under the definition. Here are a few common solutions for small to midsize businesses that would almost certainly qualify:

  • Quickbooks Online or similar
  • ADP or similar
  • Bill.com or similar
  • Salesforce or similar
  • Netsuite or similar

The term “cloud” is imprecise and covers a lot of ground, which should create flexibility in how businesses are able to use their PPP funds. There are plenty of services, especially in the Microsoft family of services, to consider. Many common business solutions would also qualify as a ‘cloud computing service’, such as:

  • Email delivered via Microsoft 365,
  • Data Analytics powered by Microsoft PowerBI to provide insights into your business and start the automation journey for your small business,
  • Microsoft Azure for running server workloads outside the walls of your organization,
  • Microsoft Teams for calling, file collaboration and communications, and
  • Windows Virtual Desktops to power your Windows desktops from the cloud.

If any of these items have been on your radar to implement, now is the time to start planning because the timer starts for expenditures on the day you receive your PPP funds and you only have at most a 24 week window to spend the funds and achieve full loan forgiveness.

Understand Your Options

If your business has 500 or fewer employees and saw your gross revenues decrease by at least 25% in any quarter of 2020, then you should take a close look at the full requirements for both PPP2 and the Employee Retention Tax Credit (ERTC) to determine your eligibility.

Be careful with the expenditures you are looking to qualify to ensure you are following the ‘cloud computing service’ definition. For example, new laptops are likely not covered under the definition. Although laptops are valuable for accessing cloud-based applications, it is clear the intent is for business software and cloud functions.

PPP2 can be a lifeline for businesses hit hard by the pandemic. While the PPP2 rules are complex, the program can provide a significant opportunity to modernize your business to compete in the coming years.  Our advisors are closely following COVID-19 relief efforts and will continue to publish more insights to keep you informed. Visit our COVID-19 Resource Center or contact an advisor today to discuss your situation and recovery options.

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