The US Small Business Administration (SBA) and the Treasury issued guidelines late on Wednesday for the reconstituted Pay Check Protection Program (PPP).
The guidance came in the form of two interim final rules (IFRs).
- The 82-page IFR “Temporary changes to the commercial loan program; Paycheck protection program as amended ”consolidates the rules for forgiving PPP loans for first time borrowers and describes the changes made by the Small Business, Nonprofit and Local Economic Aid Act, PL 116-260 ).
- The 42-page IFR “Temporary changes to the commercial loan program; Second check loans from the paycheck protection program ”sets out the guidelines for new PPP loans for companies that have already received a PPP loan.
AICPA will provide a detailed review of the new guidance in a virtual City Hall today at 3 pm Eastern Time. The webcast is available free of charge to AICPA members.
O JofA will update this article with details on the new PPP guidance later this morning. The following is a summary of the new program, as described in the Economic Aid Act.
PPP2 overview
Congress revived the PPP as part of the $ 900 billion COVID-19 relief bill that was signed on December 27. The program provided $ 525 billion in forgivable loans for five months before it stopped accepting applications in August. The Economic Aid Act restarted the PPP (or PPP2, as some call it) with many of the same parameters as the first program, but also with several important differences from the original PPP.
One of the biggest changes is to make PPP financing available to companies that have already received a PPP loan. Companies are eligible for a second PPP loan of up to $ 2 million, provided that they have 300 employees or less, have used or will use the full amount of their first PPP loan and may experience a 25% drop in revenue gross in any quarter of 2020 compared to the same quarter of 2019.
New PPP loans are also available to the first borrowers in the following groups:
- Companies with 500 employees or less who are eligible for other SBA 7 (a) loans.
- Individual owners, independent contractors and qualified self-employed individuals.
- Non-profit, including churches.
- Accommodation and food operations (those with North American Industry Classification System (NAICS) codes starting with 72) with less than 300 employees per physical location.
The legislation also allows borrowers who have returned all or part of a previous PPP loan to be able to request the maximum amount available again.
PPP loan terms
As in PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest and utilities. PPP2 also makes the following potentially forgivable:
- Expenditure on worker protection and modification of covered facilities, including personal protective equipment, to comply with the federal health and safety guidelines COVID-19.
- Supplier expenditures that are essential at the time of purchase for the recipient’s current operations.
- Covered operating costs, such as cloud computing software and services, and accounting needs.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the payroll funds over a covered period of eight or 24 weeks – the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers can receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or in the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $ 10 million in the first round to the aforementioned $ 2 million maximum. PPP borrowers with NAICS codes starting at 72 (hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs, again subject to a maximum of $ 2 million.
Simplified application and other important terms
The new COVID-19 relief bill also:
- Creates a simplified forgiveness process for loans of $ 150,000 or less. Specifically, a borrower will receive forgiveness if the borrower signs and sends the creditor a certification that does not have more than one page, including a description of the number of employees that the borrower was able to retain because of the loan, the total estimated loan amount spent with payroll costs and total loan amount. The SBA must create the simplified application form within 24 days of the enactment of the bill and cannot require additional materials, unless necessary to prove the revenue loss requirements or satisfy the relevant legal or regulatory requirements. Borrowers are required to retain relevant employment-related records for four years and other records for three years, as the SBA can review and audit these loans for fraud.
- It repeals the requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan advance from their PPP forgiveness amount.
- Includes set-asides to support PPP borrowers for the first and second time with 10 or less employees, PPP borrowers for the first time who have recently become eligible and for loans made by community lenders.
AICPA experts discuss the latest news on PPP and other small business aid programs during a fortnightly virtual city hall. Webcasts, which provide CPE credit, are free of charge for AICPA members. I go to the AICPA Town Hall Series web page for more information and to register.
O AICPA paycheck protection features page it houses resources and tools produced by AICPA to help address the economic impact of coronavirus.
For more news and reports on coronavirus and how CPAs can deal with outbreak challenges, visit the JofAin coronavirus resource page or subscribe to our email alerts for the latest PPP news.
– Jeff Drew ([email protected]) it is a JofA senior editor.