The new economic aid to hard-hit small businesses, nonprofits, and venues…what is in it for businesses?

From US$284 billion in PPP loans to tax deductions and tax credits for sick leave; stimulus funds will help make the winter not so chilly for many businesses

Washington, DC, at dusk with Capitol and Washington Monument

Corporate Alert

COVID-19 Alert

By:

January 11 update -  links to borrower forms are below

January 13 update - The SBA has announced it is allowing PPP Loan applications from small banks beginning this Friday, January 15, and from all banks beginning Tuesday, January 19.

Congress passed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act and President Trump is expected to the sign the bill into law. The legislation requires the SBA Administrator to establish regulations to enact this new legislation no later than 10 days after it is signed into law.

The legislation includes a major overhaul of the Paycheck Protection Program, which, once restarted, will once again offer businesses loans that can be forgiven if borrowers maintain their payroll. The revamped PPP will make available $284.5 billion in loans, accounting for the bulk of the $325 billion in small business aid in the legislation. This new package provides additional funding for certain businesses that were left out of the first round including minority and women-owned businesses, 501(c)(6) nonprofits, news outlets, housing cooperatives, and small agricultural cooperatives.

The legislation repeals the EIDL Advance deduction and allows the deduction for expenses paid with proceeds from all PPP loans.

The legislation also includes $20 billion in Economic Injury Disaster Loan grants and a new program that would offer $15 billion in grants to live venues and related companies.

Second Draw PPP Loans

While possessing some similar terms as the prior PPP loan program, the Second Draw PPP Loans allow businesses that took loans earlier this year to apply for a second round of support of up to $2 million. To receive a Second Draw PPP loan, businesses with no more than 300 employees will have to demonstrate a 25 percent decline in gross receipts in a quarter this year compared to the same quarter last year. These loans will be targeted at smaller businesses than the 2020 PPP loans. The loan size calculation is 2.5x average monthly payroll costs up to $2 million, however businesses with NAICS Codes that begin with 72 will get 3.5x average monthly payroll costs up to $2 million. The use of proceeds will be expanded to include additional expenses including Covered Operations, Covered Property Damage Costs, Covered Supplier Costs and Covered Worker Protection Expenditures. The borrowers have a choice once again of 8 weeks or 24 weeks for their covered period.

BUSINESS HIGHLIGHTS

The package comes with a variety of measures long sought after by the business community, including:

  • $284 billion in PPP loans with expanded eligibility for 501(c)(6) nonprofits, media outlets, women and minority-owned businesses and housing and agricultural cooperatives which were left out of the original program. Generally, businesses with 25 percent or more decline in revenue reductions and 300 or fewer employees can apply for a second loan.
  • Expenses paid for with PPP loans will be considered tax deductible, officially reversing an IRS decision made earlier in the year.
  • The legislation also repeals the EIDL Advance deduction and allows the deduction of expenses paid for with the forgivable loan.
  • A fresh $20 billion for the Economic Injury Disaster Loan Program.
  • A $15 billion support program for live music venues, movie theaters and museums that have experienced “significant” revenue loss (companies must choose between this and a Second Draw PPP Loan).
  • Large set-asides for community development financial institutions and minority deposit institutions.
  • Corporate meals will be a deductible business expense for two years (nicknamed the “Three-Martini Lunch Deduction” and aiming to help restaurants).
  • Rescission of $429 billion in unused funds provided by the CARES Act back in March for the Federal Reserve to use in emergency lending programs, terminating them. While those programs had been criticized for their undersized impact, lawmakers had continually hoped to use the funding for other issues.
  • Additional funding will go toward the distribution of COVID-19 vaccines, testing and tracing.

EMPLOYMENT HIGHLIGHTS

  • Tax credits under the Families First Coronavirus Response Act (FFCRA) will be available for qualifying leave given through March 31, 2021 (extending previous December 31, 2020 expiration).
  • As of January 1, 2021, participation by employers is voluntary and leave is no longer an employee right (subject to other FMLA and state/local leave requirements).
  • No renewed or extended leave is provided – tax credits are only available for employees who have not previously exhausted FFCRA leave, although paid FMLA related to childcare-related absences may be renewed depending on the timing of the employer’s FMLA calculations (ie, rolling v. calendar year).

INDIVIDUAL HIGHLIGHTS

In addition to the business stimulus, the roughly $900 billion spending measure will include stimulus checks of $600 per individual and enhanced unemployment insurance of about $300 a week.

CHEAT SHEET

  • Second Draw Loan cap: Loans are capped at $2 million
  • Reduced eligibility for Second Draw Loans: Borrowers must meet following criteria:
    • 300 or fewer employees
    • >25 percent decline in gross receipts in a 2020 quarter versus same 2019 quarter
  • Loan calculation: Same as initial PPP – 2.5x monthly payroll (restaurants and hotels eligible for 3.5x)
  • Covered period: Borrower can choose 8 or 24 weeks
  • Affiliation: Same as initial PPP – including waivers of affiliation for franchise, SBIC and NAICS Code 72
  • Permissible use: Same as initial PPP, but added categories
    • “operations expenditure” – payment for business software or cloud computing service that facilitates business operations, product or service delivery, payroll, HR, sales and billing, accounting, or supplies, inventory, records and expense tracking
    • “covered property damage” – cost related to property damage from vandalism, looting or public disturbances in 2020 not otherwise covered by insurance
    • “covered supplier cost” – expenditure made to a supplier of goods for the supply of goods that are essential to the operations of the entity (some contract timing requirements)
    • “covered worker protection expenditure” – expenditure for adaptation of business activities to comply with HHS, CDC, OSHA or other state/local regulations; includes HVAC, plexiglass barriers, expansion, health screening equipment, PPE
  • Forgiveness: Follows same format as initial PPP
  • Other items:
    • Expenses paid with PPP loans considered tax deductible, reversing earlier IRS ruling
    • Substantial changes to EIDL
    • Corporate meals deductible for two years
    • FFCRA tax credits allowed until March 31, 2021, but no longer a worker entitlement after December 31, 2020. Does not renew bank for employees who have already used the 80 hour entitlement
    • Unemployment enhanced by $300/week
    • Stimulus check of $600 per individual
    • Targeted grants for particular industries – live music/performance, movie theaters, museums, etc.

If you need any assistance with these or any other stimulus programs, please reach out to your DLA Piper relationship partner or any of the authors of this client alert.

Additional information

Visit www.sba.gov, www.treasury.gov and www.irs.gov for the most up to date information on the Paycheck Protection Program and Employee Retention Tax Credits.

The SBA will start taking applications from community lenders on January 11 and from all other lenders later in the week.   The PPP Borrower Application Form is here and the Second Draw Borrower Application form is here.

will start taking applications January 11 from community lenders and later in the week from all other lenders.

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