PPP 2.0: The Short Version of What You Need to Know

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At this point I think “PPP” for most accountants is the equivalent of nails on a chalkboard. While we’re all happy to see our clients receive the assistance they need, the constantly-changing provisions, lack of guidance and overall frustration with these loans has given us all PPP PTSD.

The SBA and the IRS went back and forth last year changing provisions, issued interpretations that made no sense and confused borrowers, not to mention accountants trying to figure out how to support our clients and tax plan for the fallout of all this “free” money. Ready or not though, round two is here and your clients want to know how they get in line for the next round of funding. Here’s the highlights of what you need to know:

  1. Borrowers who qualify can still apply for PPP 2.0 even if they did not take loans in round one. Loans will be made through March 31st so time is of the essence for clients making their decisions about applying. Second draw borrowers, meaning businesses who received a PPP loan in the last round must have used all their funds from their previous PPP loan.
  1. First time borrowers must employ no more than 500 employees; 300 employees for second draw borrowers. Specific provisions apply to related entities and affiliate businesses as well as organizations with multiple locations for calculating the number of employees. Provisions also apply to businesses that are seasonal. Refer to the specific guidance here if any of these situations impact you or your clients.
  1. First draw borrowers may use EITHER 2019 or 2020 as the time period on which to base their loan calculations. Borrowers must have experienced a reduction in revenue of 25% or greater for at least one quarter of the year as compared to the same quarter in the previous year. For second draw borrowers; borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019. A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. Second draw borrowers may be eligible to reduced the required documentation submission if they are applying using the same period
  1. As with previous loan provisions, wages paid to any employee and/or owner in excess of $100,000 per year are excluded from the calculation to determine the loan amount and also may not be considered as part of the wages calculation for forgiveness application. Self employed individuals may use net profit from their Form Schedule C on their 2019 1040 as the “annual wage” amount for the purposes of calculating their loan eligibility as well as forgiveness.
  1. Covered expenses for forgiveness have been expanded. Operating expenses such as software and/or cloud computing expenditures necessary to support a remote work environment are now included in the list of approved expenses for forgiveness applications. The guidance also lists the following:
    • “Covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
    • Covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—(A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order—(i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan); and xi.
    • Covered worker protection expenditures (A) operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration” (treasury.gov).

Note: At least 60% of the loans must still be used on eligible payroll expenses over a covered period of either 8 or 24 weeks (the same parameters as PPP1).

Forgiveness applications must be submitted within 10 months of the disbursement date in order to avoid required payments on interest and principle of the loans. Second draw borrows are required to fill out a different form than first time borrowers so ensure that your DIY clients are grabbing the correct applications for their business.