Latest coronavirus relief bill means another round of aid for businesses

After months of delay, Congress has finally passed a second stimulus package of $900 billion. As part of the coronavirus relief bill, $284 billion is allocated to reopen the Paycheck Protection Program (PPP) that closed in August. The federal loan program is designed to provide economic relief to companies experiencing economic hardship due to the coronavirus pandemic. The new wave of PPP loans will be similar to the first round of loans but will have some key differences that could qualify or disqualify a business.

Business Max Size

Instead of the 500 employee cap in the first round, businesses must have 300 employees or less to qualify for the PPP 2.0 loan. The decrease in company size is meant to target smaller businesses that were hit the hardest by the pandemic. Also, businesses that received a PPP loan in the first round can still qualify. However, they must use or plan to use all the existing PPP funds they’ve already received.

25% Reduction in Revenue

During the first round of PPP loans, businesses just needed to state whether they had economic uncertainty to get a loan. Now, businesses must show they had at least a 25% loss in revenue during 2020 to qualify for a PPP 2.0 loan. Using gross receipts from last year, businesses will compare a quarter in 2019 to the same quarter in 2020. As long as one-quarter meets the 25% revenue loss, this eligibility requirement will be met.

For first-time borrowers, the new eligibility requirements do not apply. This means they can have 500 employees or less and don’t have to prove a 25% revenue loss.

PPP 2.0 Loan Limits

The maximum loan limit for a PPP 2.0 loan is $2 million. This is less than the $10 million allotted in the CARES Act. The amount a small business can qualify for is based on 2.5 times the average monthly payroll expenses. Businesses in the accommodation and food services industries are eligible for a larger loan amount at 3.5 times the average monthly payroll expenses.

Loan and Tax Forgiveness

For a PPP 2.0 loan to be forgivable, at least 60% of funding must be spent on payroll costs. Since funding is based on the average monthly payroll expenses, this shouldn’t be too difficult for businesses to meet. The remaining 40% should be spent on other eligible costs, such as rent and utility payments. Both PPP loans in the original and second round will not be taxable when forgiven.

Also, the new bill will have a simpler forgiveness process for PPP loans under $150,000. Businesses who receive a loan for that amount or less will only have to complete a one-page forgiveness application. The application will include loan information and other information to make sure program requirements were followed.

The new coronavirus relief package is long overdue, and it isn’t perfect. But, at least, it’s here! And, after delaying and refusing to sign the approved legislation, President Trump finally signed the bill this past Sunday evening.