New Stimulus Has Plenty for Small Business
The pandemic relief package (Consolidated Appropriations Act, 2021) gives a break to small businesses by reopening the Paycheck Protection Program so that some of the hardest-hit small businesses can apply for a second loan.
The new round of loans will be limited to those with fewer than 300 employees that have seen drops of at least 25% in revenue during the first, second or third quarter of 2020 compared with those quarters in 2019. It also:
- Reduces the amount a borrower can receive from $10 million to $2 million.
- Gives businesses more flexibility on how they spend the money.
- Simplifies the forgiveness process for loans under $150,000.
The measure carves out $12 billion for minority-owned businesses, with $20 billion for new Economic Injury Disaster Loan grants. According to Small Business Administration guidance, these loans are designed to meet financial obligations and operating expenses that could have been met had the disaster not occurred.
In addition, the law creates a $15 billion grant program for live venues, theaters and museum operators that have lost at least 25% of their revenue. The initial grant can total up to $10 million per eligible business. A second grant, worth half the amount of the first, may also be available. The money will be for specific expenses such as payroll costs, rent, utilities and personal protective equipment. Priority will be given to those who have faced 90% revenue loss.
Washington has also amended and extended the employee retention credit (and the availability of certain advance payments of the tax credits) under section 2301 of the CARES Act. The Employee Retention Credit under the CARES Act was designed to encourage businesses to keep employees on their payroll. The refundable tax credit was originally 50% of up to $10,000 in wages paid by an eligible employer whose business had been financially impacted by COVID-19. s of Jan. 8, the IRS had not yet updated its guidance on these credits, but we'll be following this.
Details on PPP Loans
Businesses that received PPP loans would be able to take tax deductions for the expenses covered by forgiven loans — this was a much-discussed feature. As noted in IRS Guidance: "The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies for taxable years ending after March 27, 2020."
There will be $3.5 billion for continuing the Section 7(a) Debt Relief program and $2 billion for enhancements to SBA lending.
As before, PPP loans are backed by the SBA but issued by financial institutions, such as banks, credit unions, fintech companies and community lenders. Interested businesses should check to see whether a specific lender is participating. SBA figures show 5,460 lenders were taking part when the initial PPP closed in August 2020.
The SBA is issuing all final guidance and rules as the program reopens so every eligible business can participate. An SBA representative said the agency and the Treasury are committed to launching the next round of PPP as quickly as possible; to working to identify changes to program rules, forms and processes as laid out in the legislative text; and to appropriately updating guidance and systems for PPP lenders and borrowers.
This is just a summary of a complex series of provisions nestled in a 5,000-page bill. There are other rules and exceptions, and as more guidance is made available, new details modifying these provisions may come to light. Keep an eye on the SBA website for additional information, and most important, stay in touch with us for more details.