Tuesday, January 5, 2021
Key elements of the $900 billion relief package, which passed as part of government funding bill in the waning days of 2020, include $284 billion in funding for a new round of potentially forgivable loans to help small businesses keep employees on their payrolls.
Additionally, the legislation authorized up to $600 in cash rebates to single taxpayers earning under $87,000, based on 2019 federal tax returns; under $174,000 for married couples. Taxpayers also qualify for additional $600 payments for each dependent child under the age of 17. While significantly lower than the $2,000 payments some in Congress and the President had pressed for, the cash payments, which have already begun to hit some taxpayers bank accounts, are expected to prompt much-needed consumer spending.
The Treasury Department said it has begun disbursing payments via Direct Deposit to taxpayers with bank accounts on file. Checks and prepaid debit cards are slated to be issued later in the month to qualifying taxpayers without bank accounts on file with the Internal Revenue Service.
Eligible small business that missed out on the first round of PPP loans, which ended on Aug. 8, 2020, will again have an opportunity to apply for PPP loans under the same funding rules that applied last year.
Businesses that secured PPP loans in 2020 under the CARES Act can request second round loans, with some restrictions. For example, second round loans cannot exceed $2 million (the ceiling under the CARES Act was $10 million). And unlike the first round of loans, which were available to businesses with fewer than 500 employees, the new round of funding is limited to loans to companies with 300 or fewer employees. They also must demonstrate a loss of 25 percent of gross receipts during any one quarter of 2020 relative to the same quarter in 2019.
Included in the $284 billion of new Small Business Administration-backed funding is $35 billion earmarked for first-time PPP loan applicants, plus $15 billion for first-time applicants with 10 or fewer employees and those located in economically distressed areas, Jennifer Audeh, a partner in the law firm Foley Hoag stated in a blog post.
PPP loans are unlike other loans typically guaranteed by the SBA in that they are unsecured. There are no requirements for collateral, personal guarantees or documentation that other forms of credit typically require. And PPP loans are available not just to businesses with employees. Unlike most SBA-backed loans, eligible PPP applicants include sole proprietors, independent contractors (like MLSs) and self-employed individuals.
Perhaps the biggest advantage, though, is that PPP loans are forgivable, provided the funds are used to cover payroll costs and other overhead. The CARES Act specifically permits PPP loan monies to be applied to rent, utilities and mortgage interest, in addition to payroll. The new law expands that list considerably. Now PPP recipients can apply loan monies to expenses like supplying employees with personal protective gear, costs associated with outside dining, and property damage costs due to public disturbances in 2020 that were not covered by insurance.
PPP loans that are not forgiven carry an interest rate of 1 percent and must be repaid within two or five years, depending upon when the loan was approced. There’s now a simplified forgiveness application for businesses that receive PPP loans of less than $150,000, according to the new legislation; originally the pared back application process was limited to loans under $50,000.
The new COVID-19 relief package also clarifies that forgiven PPP loans are not taxable income, and that expenses paid for with PPP loan funds are deductible. Under the federal tax code, forgiven debit is considered taxable income; the tax code also prohibits firms from deducting expenses associated with tax-free income.
While the CARES Act specified that forgiven PPP loans would not count as taxable income, and that expenses paid from those loans remain deductible, the Treasury Department subsequently issued a ruling that covered expenses that were not ordinarily deductible. “The new clarification cements the original intent of tax-free forgiveness and deductibility into law,” the Tax Foundation, a tax policy think tank, wrote in an analysis of the legislation. This results in a “two-part subsidy to businesses,” the foundation added.
The SBA reported that it approved more than 5 million PPP loans last year worth more than $525 billion. The SBA is expected to release specific PPP loan program guidelines this month. Companies that specialize in small business financing, meanwhile, are preparing to hop aboard the refueled PPP loan bandwagon. Reliant Funding, for example, just revealed that it’s working with Biz2Credit to help secure PPP loans for its clients and prospects.
“While we’re seeing some progress with the COVID-19 vaccine, we know our economy and small businesses are still struggling, and are in need of additional support,” said Adam Stettner, Reliant’s CEO.
“We are ready to help small businesses get PPP funding as quickly as possible when the applications for the second PPP round open,” said Rohit Arora, CEO of Biz2Credit. 
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