PPP small business stimulus

After months of negotiations, the federal government passed a bill that includes long-awaited pandemic relief for the millions of Americans struggling with the economic impact of the COVID-19 crisis. What can small businesses expect? The $900 billion pandemic relief package:

  • Reopens the Payroll Protection Program (PPP)
  • Creates a Second Draw program for businesses that have exhausted their PPP funding as part of the CARES Act.
  • Updates the terms of the Economic Injury and Disaster Loan (EIDL) grant and the Employee Retention Tax Credit (ERTC) programs.
  • Introduces the new venue grant program, created to support culture, arts and entertainment venues and professionals who have lost revenue due to the pandemic.

Here’s an overview of the stimulus bill’s small business provisions.

How much financial aid should businesses expect to receive?

Small businesses owners applying for PPP may receive a maximum amount of 2.5 times their average monthly payroll. Businesses using NAICS code 72, or those classified as accommodations or food service, may receive 3.5 times their average monthly payroll. The maximum loan amount is $2 million.

What is the Second Draw program?

The Second Draw program is designed to offer help to small business owners who’ve exhausted their first round of PPP funding but still need assistance. To be eligible, businesses must have fewer than 300 employees and be able to demonstrate at least a 25% reduction in gross receipts in at least one quarter of 2020 compared to the same quarter in 2019. The maximum loan amount is $2 million dollars.

Business owners who receive funding under the Second Draw program will still have to adhere to the 60/40 rule that governed the first round of PPP loans: meaning that at least 60% of the loan must be spent on payroll costs and no more than 40% can be used for rent, mortgage, interest on debt and other expenses.

What new expenses will be forgiven under the relief package?

The new package expands the business expenses that can be covered by the loans. After spending the required 60% minimum on payroll, business owners may use up to 40% on an expanded list of eligible expenses such as:

  • Operations expenses like accounting systems
  • Supplier goods essential for businesses 
  • PPE for employees
  • Materials required to ensure locations comply with social distancing guidelines
  • Property damaged during the social uprisings that were not covered by insurance. 

The purchase orders for these materials must have been in effect before receiving the loan, unless they’re perishable. Inventory is not considered an eligible expense.

Does the bill expand the kinds of businesses eligible for relief?

Under the new plan, housing co-operatives, some local news organizations and 501c6 businesses are now eligible to apply for PPP loans.

Will the EIDL grant program reopen?

The new bill sets aside $20 billion to fund $10,000 Economic Injury Disaster Loan grants. Business owners will not have to repay these grants, nor will they have to choose between EIDL grants and PPP loans. Receiving an EIDL grant will not reduce a business owner’s PPP loan forgiveness.

What should I know about loan forgiveness?

You may have heard that businesses that got a loan of less than $150,000 will receive automatic forgiveness on those loans, but that’s not quite true. Those businesses will have to submit a single-page form indicating they used the loan correctly. The process is the same for businesses receiving the first PPP loan and the Second Draw.

Businesses that used their PPP loan to restore headcount will also be eligible for loan forgiveness. Additionally, if a business is not able to restore headcount because of COVID-19 safety restrictions or a lack of eligible candidates, that business will not have to repay the loan in full. Lastly, the new stimulus indicates that businesses which receive both an EIDL grant and PPP loan will not have the amount of the grant deducted from the PPP loan. 

Many minority-owned businesses didn’t receive PPP loans the first time around. What happens now?

Though the new relief package doesn’t designate funds specifically for minority-owned businesses, it does set aside money for credit unions, small banks, community development financial institutions and other lenders in neighborhoods that are low-income or whose residents are predominantly people of color. Funds have also been set aside for businesses with 10 or fewer employees.

What happens when businesses that receive government relief file their taxes?

Congress repealed the part of the first stimulus that required small business owners to choose between PPP loans and the Employee Retention Tax Credit (ERTC) program. The ERTC program has been extended, meaning that between January 2021 and the end of June, businesses may claim a maximum tax credit of $14,000 per employee. You must claim this credit before the end of 2020. Businesses may not claim both ERTC benefits and PPP funds for wages paid in the same month.

PPP loans aren’t taxable and the IRS can’t limit your deductions as a result of the PPP loan. 

How will the venue grant program work?

The new pandemic relief package includes $15 billion in grant funds for businesses such as live venue owners and operators, independent movie theaters and talent promoters that have lost at least 25% of their gross revenue. They may receive grants of 45% of their 2019 gross revenue, equaling no more than $10 million. Businesses in this category that receive grants may not claim PPP loans.

Does the stimulus package include relief for self-employed workers?

Self-employed workers are eligible to apply for PPP loans or Second Draw loans if they’re able to demonstrate a significant reduction in revenue. They are not able to receive PUA (pandemic unemployment assistance) benefits at the same time. 

If I was rejected for aid in the spring, should I reapply?

Yes, you should. 

What do first-time applicants need to know? 

Fortunately, first-time applicants will be given priority when funds are dispersed. On the other hand, the SBA and Treasury are still working to update the application forms for the loan and grant programs affected by the new laws. 

For more information, visit the U.S. Chamber of Commerce’s Emergency Loans hub.