Small business owners across America are preparing to apply for their first or second PPP loan.
One of the most critical points to understand is how you can use the PPP funding you receive. PPP loans are forgivable in full if you use the funds appropriately. However, if used for other purposes, you may have to pay back part or all of your PPP loan.
Here’s information to date about the expanded use of funds for this new round of the PPP.
What is a PPP Loan?
Congress has passed and the President has signed the Appropriations Act, 2021, to supply a second round of economic stimulus to those impacted by the COVID-19 pandemic.
Included in the new COVID-19 relief package is the extension of the previous Paycheck Protection Program (PPP) through March 31, 2021. Forgivable PPP loans from the new round will provide direct relief of up to $2 million per borrower to smaller businesses and nonprofits in industries hit hard by the pandemic and economic shut-down.
Expanded use of PPP funds
Congress has expanded the types of expenses for which all PPP loans can be used, which applies to existing PPP loans, unless forgiveness has already been obtained, and new PPP loans.
Previous proceed use for first round of PPP:
Funding could be used for payroll, rent, covered mortgage interest and utilities.
New proceed use for the next round of PPP funding:
The PPP now allows proceeds to be used for:
- Covered Operations Expenditures: payments for business software or cloud computing service that support business operations, product or service delivery, the processing, payment or tracking of payroll expenses, HR and billing functions, or tracking of supplies, inventory, records, and expenses
- Covered Property Damage Costs: costs related to property damaged 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 to a supplier of goods that are essential to operations when the expenditure was made and is made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
- Covered Worker Protection Expenditures: operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date which the national emergency declared by the president expires. Other covered costs include the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19. These expenses appear to include PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows
How is the new round of PPP funding different?
Except for limited circumstances, the act compared to the original is different in three significant ways:
- The maximum loan amount available to a business or nonprofit decreased from $10 million to $2 million per borrower.
- Subject to certain exceptions, the maximum workforce size for an eligible borrower is reduced from 500 to 300 employees.
- For a second PPP loan, the revenue drop needs to be at least 25%
Excluded categories include:
- An entity organized for research or for engaging in advocacy in areas such as public policy or political strategy or that otherwise describes itself as a think tank in any public documents.
- Any business concern or entity primarily engaged in political or lobbying activities.
- Any entities affiliated with entities in the People’s Republic of China, the Special Administrative Region of Hong Kong, or that retains as a member of the board of directors a person who is a resident of the People’s Republic of China.
What you need to know
The availability of PPP loans remains subject to SBA guidance and other factors, including the amount of funding available to banks and the quantity of eligible applicants considered on a first-come, first-served basis. The information provided above is for educational purposes only. Please consult the SBA’s website for actual rules and the most current guidance.