A new $900 billion COVID-19 relief package was signed into law on December 27, 2020, but how exactly will it help small businesses? Here’s everything you need to know, including the new provisions to the Paycheck Protection Program and Small Business Administration Lending Programs, plus how you can access funds.

Stunning Wear and Gear LLC wants it’s clients to be in the know.

The Small Business Administration is developing application guidelines with a deadline of January 6.

100% Forgivable Loans Through the Paycheck Protection Program (PPP)

The new stimulus bill allocates $284 billion directly to the PPP. As with the first stimulus bill, the PPP loans are forgivable, as long as you spend at least 60% of the funds on payroll expenses. However, this time around, there are new qualifications to give small businesses priority over larger businesses:

  • You must demonstrate at least a 25% revenue loss for any quarter in 2020 compared to 2019.
  • The maximum loan amount has been lowered from $10 million to $2 million.
  • The maximum number of employees allowed has been lowered from 500 to 300 per location.

In addition, there are several other key improvements that should make it easier for you to access and utilize PPP funds:

  • If you’re borrowing less than $150,000, there’s a new, simplified 2-page application.
  • Restaurants can borrow up to 3.5x their monthly payroll (based on average monthly payroll before the pandemic or first PPP loan).
  • Other business types can borrow up to 2.5x their monthly payroll cost.
  • Eligible non-payroll expenses have been expanded to include cleaning products and services, supplier costs, and reconfiguration expenses for social distancing.
  • Special support will be provided to businesses with 10 or fewer employees, although the bill doesn’t specify exactly how that support will function.

To apply for a forgivable PPP loan, you will need to meet eligibility requirements and work with a participating lender. 

PPP Loans Now Tax Deductible

With the first stimulus bill, the IRS and U.S. Treasury Department ruled that PPP loans were not tax deductible, meaning you would not be able to write off any standard business expenses if they were paid using PPP funds. The new relief bill closes that loophole, and you can now deduct eligible business expenses paid with PPP loans, including any previous PPP loan you might have taken. These expenses includes:

  • Payroll
  • Rent
  • Mortgage interest
  • Utilities
  • Personal protective equipment

New Tax Credit Rules for Retaining Employees

As an incentive for you to retain your employees, the new stimulus bill expands the Employee Retention Tax Credits (ERTC). If you are able to retain employees over the first two quarters of 2021, you may be able to deduct as much $7,000 per eligible employee. However, if you receive a PPP loan, the ERTC will only apply to employees whose wages are not paid for with PPP funds.

In addition to the ERTC, the Work Opportunity Tax Credit (WOTC) has been extended by five years, meaning there are more opportunities to earn additional tax credits for hiring, training, and retaining employees from targeted groups, such as qualified veterans, ex-felons, and people who have been on long-term unemployment, among others. 

Enhancements to Small Business Administration (SBA) Lending Programs

In addition to improving PPP loans, which are forgivable, the new funding package also improves non-PPP loan programs that are funded by the SBA through partnering lenders. The new enhancements apply whether you already have an SBA loan or are applying for a new one. Here are the key new changes:

  • The new stimulus bill extends the waiver on principal and interest payments for new and existing SBA loans, meaning you’ll get continued support on loan payments from the federal government.
  • The SBA is also extending how long it will pay the principal and interest you may owe on 7(a), 504, and micro-loans taken before the CARES Act; the extension is for 3 months for most businesses, with an additional 5 months for restaurants. 
  • To encourage financial institutions to lend money to small businesses, the SBA is increasing their guaranteed funding to lenders for 7(a) loans to 90% with no fees.
  • Similarly, the SBA will not be charging fees to lenders for 504 loans, which are used for business expansion and modernization projects, as well as acquiring fixed assets.

For further details on these enhancements or to apply for an SBA loan, visit the SBA website.

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