Flexibilities and financing of the new paycheque protection program | Akin Gump Strauss Hauer & Feld LLP
[co-athour: Madeline Bardi]
- On December 27, 2020, the new stimulus plan allocating an additional $ 284.45 billion to the PPP was promulgated.
- The categories of eligible uses of the loan and remittance proceeds are significantly broadened from the original PPP.
- Expenses paid with the proceeds of the PPP loan are 100% deductible, applied retroactively.
- ERTC can be used in conjunction with PPP.
- Some hard-hit businesses are eligible for a second draw of up to $ 2 million.
Paycheque Protection Program: New Provisions in Latest Relief Package
On December 27, 2020, the President signed a $ 908 billion COVID-19 relief plan (the “law”) with several new Paycheck Protection Program (PPP) provisions, including $ 284.45 billion. additional dollars for new PPP loans until September 30, 2021.
Tax deductibility of expenses paid with the proceeds of the PPP loan
The law addressed a major outstanding issue with PPP loans: the deductibility of expenses paid using the proceeds of a PPP loan. While the Coronavirus Aid, Relief and Economic Security Act (CARES Act) specifically excluded the cancellation of PPP loans from taxable income, the law makes expenses paid with the proceeds of PPP loans 100% deductible. . This new provision applies to all PPP loans, even those that have already been forgiven.
Employee retention tax credit
The law changes the wording of the original CARES law to allow the use of the Employee Retention Tax Credit (ERTC) in conjunction with the PPP as long as the ERTC is used for wages not paid with the funds. PPP. This provision enters into force retroactively to the date of entry into force of the CARES law and eligible companies can now benefit from the ERTC until July 1, 2021.
New eligible and forgivable expenses
The new relief program expands the PPP program by making several types of additional expenditure eligible for payment using PPP products and counted for a rebate. These expenses include:
- Covered operating expenses. Payments for any business software or cloud computing service that facilitates business operations, product or service delivery, processing, payment or tracking payroll expenses, human resources, sales and billing functions , or accounting or tracking supplies, inventory, records and expenses.
- Covered expenses for worker protection and modification of installations. Operating or capital expenses to facilitate the adaptation of business activities to comply with federal COVID-19 health and safety guidelines, such as expenses related to sanitation, social distancing, personal protective equipment and the installation of driving windows or physical barriers such as sneeze guards.
- Costs of covered property damage. Costs related to property damage and vandalism that occurred in 2020 that were not covered by insurance or other compensation.
- Supplier costs covered. Expenses made to a supplier that were a) essential to the operations of the entity at the time the expenses were made, and b) made under a contract or purchase order in effect at any time before the period covered or, for perishable goods, any time during the period covered.
As with the initial PPP loans, 60% of a PPP loan must be spent on the payroll. However, the Act now also allows group life, disability, vision and dental insurance to be included in salary costs. The remaining 40 percent of the PPP loan can be used for the above expenses and still be considered for remission.
Borrowers who have returned all or part of their PPP loan because they were unable to use the loan proceeds for qualifying expenses will be allowed to reapply for the maximum applicable amount, including if the calculations have increased. due to changes in the provisional final rules, provided they have not received forgiveness.
PPP reopens for loans up to $ 10 million for entities that have not applied before
The law allocates a minimum of $ 35 billion in loans of up to $ 10 million for eligible recipients who have not previously applied for a PPP loan.
New entities eligible for PPP loans
Newspapers, television and radio
- Newspapers, news agencies, television and radio stations operating in NAICS 51110, 515111, 515112 or 515120 that do not employ more than 500 employees per physical location and certify that the proceeds of the PPP loan will support local news or emergency.
- Public Section 511 colleges and universities that have a public broadcasting station are eligible if the entity certifies that the loan will support local or emergency news.
501 (c) (6) entities are now eligible if:
- The organization does not receive more than 15% of lobbying revenue.
- Lobbying activities do not represent more than 15% of activities.
- The cost of lobbying activities did not exceed $ 1 million in the last tax year that ended before February 15, 2020.
- The organization has 300 or fewer employees.
- The organization is not a professional sports league or an organization whose purpose is to promote or participate in a political campaign or other political activities.
“Second drawdown” PPP loans
Some hard-hit small businesses may be eligible for a second P3 loan, called a “Second Draw” loan. For most companies, the following eligibility conditions all apply to the second draw:
- Have used or will use the full amount of their first PPP loan.
- Demonstrate a 25% or more reduction in revenues in the first, second, third or fourth quarter of 2020 compared to the same quarter in 2019.
- Employ 300 people or less.
Second Draw Loans have a maximum amount of $ 2 million. The loan amount is based on two and a half months of average annual payroll, or three and a half months of average annual payroll for entities in NAICS code 72 (generally hotels and restaurants). The payroll measurement period can be 2019 or the period of one year before the date of the loan of the second drawdown.
The second-draw loan provision also prohibits persons required to submit a registration statement under the Foreign Agent Registration Law and enterprises or entities affiliated with the People’s Republic of China or the Special Administrative Region. Hong Kong (“Hong Kong”) to receive additional relief. The law states that a borrower is not eligible for a second draw loan if a business “for which an entity established or organized under the laws of the People’s Republic of China or the Hong Kong Special Administrative Region or which has significant operations in the Republic of China or Hong Kong Special Administrative Region, owns or holds, directly or indirectly, at least 20% of the economic interest of the enterprise or entity, including in the form of an shares or participation in the capital or profits of a limited liability company or partnership; Where . . . retains as a member of the board of directors of the company a person who resides in the People’s Republic of China. “
To be eligible for full loan cancellation, PPP borrowers will need to spend at least 60 percent of the funds on payroll over a covered period of eight or 24 weeks; these are the same parameters as in the first PPP loans.
New provisions for public officials
The law prohibits the granting of a new PPP loan to entities controlled directly or indirectly by the president, the vice-president, the head of an executive agency, a member of Congress or one of their spouses. The law also requires that current PPP borrowers who are directly or indirectly controlled by the president, vice president, head of an executive agency, a member of Congress or one of their spouses disclose the borrower’s status. as “covered entities” to the Small Business Administration (SBA) administrator by January 27, 2021.
Make provisions that are harmless to lenders
The law extends the disclaimer for lenders contained in the CARES Act, allowing lenders to rely on any certification or documentation submitted by a PPP loan applicant. If a lender relies on an applicant’s certification or other documents relating to an initial or secondary drawdown PPP loan, no enforcement action can be taken against the lender, and the lender will not be subject to no penalty relating to the granting of the loan or the surrender of the initial PPP loan or second drawdown, if:
(A) The lender acts in good faith with respect to the origination of the loan or the surrender of the initial PPP loan or the second drawdown on the basis of this confidence.
(B) All other relevant federal, state, local and other legislative and regulatory requirements applicable to the Lender are satisfied with respect to the Initial PPP Loan or the Second Drawdown.
Reserves for community development financial institutions and minority deposit-taking institutions
The law provides for PPPs reserved for minority-owned businesses and other underserved businesses through community lenders such as Community Development Finance Institutions (CDFIs) and Minority Depository Institutions (MDIs). Subtitle B of the law provides $ 9 billion in funding that will provide long-term, low-cost capital investments to CDFIs and MDIs and $ 3 billion to the CDFI Fund to provide grants to other institutions. funds to support consumers, small businesses and nonprofits in their communities.
Simplified loan waiver for loans under $ 150,000
The Act also creates a simplified loan forgiveness application process for loans up to $ 150,000. Borrowers will receive a rebate if they provide their lender with a one-page attestation that includes a description of the number of employees the borrower was able to retain due to the loan covered, the total estimated loan amount spent for costs salary, and the total value of the loan. As part of the certification, borrowers are also required to sign an attestation that they have provided information accurately, have complied with applicable requirements, and plan to keep records for the required period. Employment-related records should be kept for four years and other records for three years, as the SBA may review and audit these loans to verify whether there is fraud, ineligibility, or other material non-compliance with applicable requirements. loan or loan forgiveness. The SBA must create this certification form within 24 days of enactment of the law. The SBA may not require additional documentation beyond the certification form, unless it is necessary to justify loss of earnings requirements or to meet relevant legal or regulatory requirements.