The newest stimulus package was signed December 27th and includes the next round of Paycheck Protection Program (PPP 2.0).

Similar to the PPP 1.0, this stimulus package to support businesses in retaining their employees is a direct infusion of cash to the business owner.  The loan is forgivable if used for its intended purpose.

The New Stimulus Package is Tailored to the Crisis

In the beginning of the economic crisis in March of 2020, a debate began among economists and market watchers as to the shape of the inevitable recovery that would ensue.  Some argued the economy would sharply rebound after we “get back to normal”.  After all, they argued, we have federal unemployment lower than we ever believed it could go.  They argued the economy would snap back quickly after the lows of the recession were reached.

Others argued the letter “L” is a better indication of what would happen.  The drop off a cliff would cause the economy to flatline and we were headed for a great depression. Letters “U” and “W” were also suggested to indicate a long slow down and a double-dip recession, respectively.

The letter that has been most appropriate from what we have experienced has been the letter “K”.  Economists and commentators have been keen to point out this economic recovery has not followed a single line.  There has been a bifurcation of the economy and the shape of the recovery depends almost entirely by industry.  Some industries have exploded higher as expected in a “V” recovery while others have continued down, suggested by the other “leg” of the letter “K”.  While many people have experienced incredible loss others have been overwhelmed by the demand for their products and services, having the best years in their business.

PPP 2.0 incorporates the bifurcated recovery into its policy.

It is this backdrop into which the Paycheck Protection Program 2.0 (PPP 2.0) is introduced.  If you recall, PPP 1.0 was part of the $2.2 trillion CARES act bill which allocated money to the Small Business Administration to create forgivable loans.  As with most legislation developed quickly, the PPP missed its mark on several fronts.  Many businesses had their best years ever and still received government money to keep employees on the payroll.  It is these businesses Congress is seeking to eliminate eligibility for PPP 2.0.

The design of the program is specifically aimed at the downward “leg” of the “K” businesses.

PPP 2.0 has tightened the eligibility for businesses to qualify for another forgivable loan.

In comparison to 1.0, the size of an eligible business has been reduced from 500 employees to 300.  The maximum amount of the loan amount also decreased from $10M to $2M.

In an effort to narrowly target the neediest businesses, the new law is requiring the business to show a 25% reduction in gross sales for a quarter in 2020 as compared to 2019.

The loan amount is the same at 2.5 times the average monthly 2019 payroll except for certain industries.  Industries relating to accommodations and food services (NAICS codes starting with 72) will be allowed to receive 3.5 times their monthly payroll costs.

Targeting aid to specific industries, 501(c)(6) organizations can now borrow money (provided they don’t spend more than 15% of their budget or $1M per year on lobbying).

PPP 2.0 Expands the usage of the categories eligible for forgiveness.

Just like 1.0, 60% of the loan proceeds must be used for payroll for it to be forgiven.  The 40% has expanded to include four new categories of expenses in addition to those already included in 1.0 (rent, utilities and mortgage interest).

  1. Covered operations expenditures: Cloud computing and new software, consulting to assist with PPP compliance.
  2. Covered property damage costs: looting damage and vandalism not covered by insurance.
  3. Covered supplier cost: an expenditure made to a supplier of goods that is essential to the operations of the entity or pursuant to a contract before the covered period.
  4. Covered worker protections: drive through construction, ventilation systems, sneeze guards or other personal protective equipment (PPE).

The law addresses some misunderstandings among the PPP loan forgiveness taxability.

The rollout of this incredibly large government bailout for private businesses has been anything but smooth.  I’ve previously written about the interplay between Congress, the Small Business Administration (SBA) and the Treasury.   While the PPP loans were intended to be tax-free to the businesses receiving them, the IRS issued Notice 2020-32 which stated that although the money may be tax-free, the expenses paid by the money received could not be deducted. (This is a longstanding policy of the IRS to prevent “double-dipping”.  Apparently, they wanted everyone to know they were going to apply this policy regardless of the intent of Congress.)

This left businesses in a pinch.  Suddenly the money that was intended to help them would reduce their deductible expenses thereby increasing their income and taxes.

The new bill finally gives borrowers what Congress intended.  The language is broad and says that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”

In addition, there will be an updated PPP forgiveness application basically offering blanket forgiveness to any borrower of loans under $150k (assuming no fraud).  This had been long-rumored but the stalemate in Congress made it impossible to predict if it would make it through.

These are just the highlights relating to the PPP portion of the bill.  There are many other aspects to this stimulus bill.

You need to act fast again.

This bill was signed by the President on December 27th.  Guidance by the SBA was issued late evening, Wednesday, January 6th.  Application forms should be available on January 8th and applications are expected to begin Monday, January 11th.  This process is moving very quickly.

If you qualify for this support, please consider contacting your bank to apply.  At the risk of sounding like a television salesman, funding is limited so please call now.

Remember this is a government loan and this is taxpayer money. 

Your company name will be listed with the total funds received.  Another dreadful round of public shaming will follow when the names are listed.  If that causes you heartburn, the decision needs to be considered.

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