The Paycheck Protection Program (PPP) was established in March 2020 by the U.S. Congress and Government to help small businesses weather the economic fallout caused by the Covid-19 pandemic. After the first two rounds of funding were exhausted in spring ($349 billion) and summer ($320 billion), a new version of PPP has been approved before the end of the year and is now available.
Businesses that did not get the loan under the first two rounds will be eligible under the old rules, while companies that obtained a PPP loan during the first two rounds will be required to satisfy new or partially modified criteria:
- Qualifying businesses can be corporations, limited liability companies, sole proprietors, self-employed, independent contractors;
- The business cannot have more than 300 employees;
- The revenues of the business must have declined by at least 25% in one quarter of 2020 when compared to the same quarter of 2019;
The great majority of businesses that satisfy the above-listed requirements will be eligible to obtain a loan equal to 2.5 multiplied per the average gross monthly payroll in 2019 or the average gross monthly payroll for the 1 year period before the loan is made. Special treatment is provided for hospitality businesses (restaurants and hotels), which are clearly those most affected by the 2020 lockdowns and social distancing restrictions: they will be eligible to obtain a loan equal to 3.5 multiplied per the average gross monthly payroll in 2019 or the average gross monthly payroll for the 1 year period before the loan is made.
As with the first version of PPP, “payroll” is broadly construed as to include:
- salary, wages, commissions;
- payment of cash tips;
- payment for vacation, parental, or medical leave;
- employee benefits;
- allowances for dismissal or separation; payment of state or local tax related to any employee’s compensation.
On the other hand, compensations in excess of $100,000 and those of employees whose residence is abroad are excluded.
Most importantly, loans issued under this new version of PPP will also be fully forgiven if the funds are used at least 60% on payroll and 40% on other qualifying expenses (rent, utilities, mortgage interests, worker protection expenditures, among others). Other significant and useful novelties of the new PPP version with respect to forgiveness:
- a simplified forgiveness application for loans of $150,000 or less – in a one-page application, the borrower business will have to merely certify the numbers of the employees retained and compliance with the qualifying expenses requirements;
- PPP funds are now tax-deductible;
- Businesses that received EIDL grants are no longer required to deduct the amount received for PPP forgiveness.
An additional and proper introduction of the stimulus package is a program of special grants for live performing arts organizations, theatrical producers, motion pictures theater operators, talent representatives, museum operators. As long as they can show at least a 25% decrease in revenues, these businesses can receive a grant of up to 45% of the 2019 revenue or 85% of the 2019 operating expenses.
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Compliments of CEA Legal P.C. – a member of the EACCNY.