Finally! Congress took its time, and President Trump held it up, but a new stimulus package has finally been signed into law. Fortunately, it contains some help for small business owners and the self-employed. Below are details of small business provisions of the new stimulus package and as importantly: What you should do immediately to take advantage of these programs.
Keep in mind that this information is based on the legislation. Regulations and details are yet to come out from the government agencies that administer the programs, such as the Small Business Administration (SBA) and Treasury Department.
NEW ROUND OF PPP FORGIVEABLE LOANS
Here’s VERY GOOD NEWS. Congress passed $284 billion for another round of PPP loans.
You can apply for a new PPP forgiveable loan, whether or not you received one before. This can be your first or second PPP loan. You cannot get more than two.
- Your Income—GROSS RECEIPTS—must have declined by 25% or more in any quarter of 2020 compared to 2019. It appears that this loss will need to be measured by quarters, not just a three-month period. Gross receipts are likely to exclude funds from PPP loans or other loans or grants.
- You must have been in business prior to February 15, 2020.
- You must have used, or will use, all of your previous PPP loan if you received one.
- You must have fewer than 300 employees in any one location.
- Qualified businesses can be corporations, LLCs, sole proprietors, self-employed, independent contractors.
- No loan can be greater than $2 million.
How much can you get?
- Most businesses: As in the first round of PPP, you can get up to your average monthly payroll in 2019 times 2.5. In other words, if your total 2019 monthly payroll cost AVERAGED $10,000, you can apply for $25,000. Keep in mind that “payroll” expenses include ALL costs for W2 employees (not independent contractors), including wages, commissions, bonuses, health insurance, retirement, state and local taxes.
- Accommodation and food service businesses: Recognizing how hard hit these industries have been, Congress upped the amount to 3.5 times average 2019 monthly payroll costs. In other words, if your restaurant’s 2019 monthly payroll averaged $10k, you can now apply for $35,000.
You can get forgiveness for this PPP loan by spending at least 60% on payroll expenses (wages, salaries, retirement, group health insurance, etc) and a maximum of 40% on other qualifying expenses during an 8 or 24 week period. More expenses now qualify (see below).
PPP set asides for certain small businesses:
Because the smallest businesses and those located in low and moderate income areas were often shut out of the first round of PPP funding, this bill includes set-asides for small businesses with fewer than 10 employees, those in low/moderate income areas, and funds for small community banks, credit unions and community-based lenders. This will hopefully level the playing field, making it easier for smaller, needier businesses to get these forgiveable loans.
IF YOU’VE ALREADY RECEIVED PPP FUNDS
New treatment of PPP expenses
Expenses used for PPP forgiveness are now TAX DEDUCTIBLE. When Congress passed the CARES act, they indicated that PPP funds should NOT be taxable. However, Treasury Secretary Mnuchin decided businesses could NOT deduct expenses used to qualify forgiveness—thus making an equivalent amount to PPP funds taxable. This legislation corrects Mnuchin’s actions.
Simplified Form for Forgiveness
If your PPP loan was for $150,000 or less, there will be a new, simple, one-page form to apply for forgiveness. Your lender should provide you a link to a form soon in the new year.
More expenses qualify for forgiveness
While you still need to use at least 60% of PPP funds on “payroll expenses,” qualifying non-payroll expenses are much broader, now including payment for software, cloud services, accounting & HR, property damage due to civil unrest, PPE and Covid-prevention equipment and, importantly—supplier costs that were contracted or ordered for before you got the loan or costs of perishable goods ordered before or during the life of the loan. (All these had to be paid during the forgiveness period, of course.) This should help companies that have high, non-rent and non-utility expenses.
GRANTS FOR CULTURAL, ARTS, LIVE EVENTS, THEATRES
Recognizing that most venues offering in-person cultural activities have been shuttered throughout the pandemic, Congress allocated $15 billion in grants (not loans) for certain live event, movie theatres, museums, and other cultural providers.
Eligibility: live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate at least a 25 percent reduction in revenues.
Smaller providers: $2 billion (of the $15 billion) was set aside for those with 50 full-time employees or fewer, but that set aside expires after 60 days. So small providers need to act fast!
Harder-hit providers: In the initial 14-day period, grants will be awarded to eligible entities that have faced 90 percent or greater revenue loss. This may include large movie chains. In the 14-day period following the initial 14-day period, grants will be awarded to eligible entities that have faced 70 percent or greater revenue loss. After these two periods, grants shall be awarded to all other eligible entities.
Money to be used for: Grants to be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
Amount: The amount of grant appears to be up to 45% of your 2019 revenue or 85% of 2019 operating expenses. A first grant can be up to $10 million, and a second grant could be up to 50% of the first grant. In other words, a large movie theatre chain could get $15 million in grants.
GRANTS FOR EIDL ADVANCES AND OTHER CHANGES TO EIDL
When EIDL (Economic Injury Disaster Loan) grants were passed by Congress, they allowed for a $10,000 “Advance” to be treated as a grant, not a loan. The SBA unilaterally scaled back that grant to only be $1000 for each employee, counteracting Congressional intent. This addresses that issue.
- Businesses in low-income communities that received an EIDL loan can get a grant equal to the difference of what they received and $10,000.
- Eligible Businesses in low-income communities that did not get EIDL loans/Advance grants because funds had run out can now get $10,000.
Also, if you previously received both an EIDL Advance grant and a PPP loan, you had to deduct the advance from your PPP forgiveness amount. You now no longer have to deduct that amount from forgiveness.
WHAT YOU SHOULD DO IMMEDIATELY
ACT FAST. What small businesses learned the last round of PPP funding was that if you snooze, you lose. You should be prepared to apply for everything THE VERY FIRST DAY IT BECOMES AVAILABLE.
- Figure out your income by quarters this year versus 2019. Many small businesses have lousy records, but you’re going to have to certify at least a 25% drop in gross revenues
- Contact potential lenders. Contact local banks, community lending institutions, credit unions. Ask whether they’re going to participate in the next round of PPP lending. Find a couple lending sources even if you received a PPP loan before.
- Try to connect with an individual lending officer. You’ll have a better chance of getting a PPP loan if you have a relationship with a person.
- Set up business banking. If you don’t already have a business bank account, get one.
- Pay attention. Keep a close out eye for application openings and deadlines. Apply DAY ONE for everything you even potentially qualify for.
Don’t pass this opportunity up! This may be the last Congressional help that comes to small businesses.
I want to see every qualified small business get the help they need to survive and thrive, so please share this information with other small business owners and the self-employed so they can be prepared as soon as the applications for these programs become available. And stay connected to me via social media and my newsletter (sign up here) as I will continue to update information as I get it.
Let’s hope we can have a much happier—and more successful—new year.
Copyright Rhonda Abrams, 2020
This article originally ran in USA Today on December 30, 2020