As so many small businesses hoped for, on Sunday, December 27th, President Trump signed the Consolidated Appropriations Act of Fiscal Year 2021 which confirms the relief that was originally intended by the CARES Act: expenses funded with proceeds from forgiven PPP loans are deductible!
Along with the deductibility of the expenses, the bill provides $267 billion of additional funds to the U.S. Small Business Administration (SBA) for PPP loans – which will be available for first-time borrowers as well as businesses that had previously borrowed funds. More specifically, businesses may apply for another loan of up to $2 million provided they (1) have 300 or fewer employees, (2) have used or will use the full amount of the first PPP loan, and (3) can show a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.
Certain first-time PPP borrowers, such as businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans; not-for-profits; and sole proprietors, independent contractors, and eligible self-employed individuals are permitted to apply for the loans. In addition, Sec. 501(c)(6) non-profit organizations such as business leagues, chambers of commerce, visitors bureaus, and “destination marketing organizations,” may apply provided certain requirements are met.
The new round of loans will include the previously eligible types of expenses (payroll, rent, mortgage interest, and utilities) along with some additional categories of costs including worker protection and facility modifications to comply with COVID-19 federal health and safety guidelines, expenditures to a supplier that are essential at the time of purchase, and certain covered operating costs such as software, cloud computing, and accounting needs.
Finally, application requirements have been eased. The bill creates new streamlined SBA loan forgiveness procedures for loans up to $2 million and a one-page form for forgiveness of loans up to $150,000.
Other business provisions include modification and extension of the CARES Act employee retention credit, an extension of the tax credit relating to qualified paid sick and family leave under the Families First Coronavirus Response Act, and a temporary change deductibility of certain business means (100% deductible rather than 50%).
Please call your BST advisor to learn more.