COVID-19 Relief Bill Passed, Key Paycheck Protection Program Issues Addressed

Congressional leaders came to an agreement on the terms of a $900 billion COVID relief bill to be attached to The Consolidated Appropriations Act, 2021 (“The Act”). This was voted on and approved by the House and Senate on December 21 and has been sent to the President for signature.

A critical aspect of this bill is that it finally addresses an issue that the business community has been concerned about for months. It explicitly provides that Paycheck Protection Program (PPP) loan forgiveness is not only tax-free but that the expenses underlying that forgiveness are also tax-deductible. This negates prior IRS guidance issued that had indicated those expenses were not deductible.

An additional $284.5 billion has been set aside for the PPP loan program, which includes the following apportionments:

  • $15 billion for PPP loans issued by community development financial institutions or minority depository institutions and $15 billion for certain small depository institutions.
  • $35 billion is restricted for first-time borrowers, $15 billion of which for smaller first-time borrowers with 10 or fewer employees or loans less than $250,000 in low-income areas.
  • $25 billion is for second draw PPP loans for smaller borrowers with 10 or fewer employees in low-income areas.

Below is a summary of key business considerations within the Act.

  • Provides for a “PPP Second Draw” loan, with a maximum loan of $2 million. Loan amounts would be based on 2.5x average monthly payroll in the one year prior to the loan or the 2020 calendar year. Entities in accommodations and food service (NAICS code 72) may receive loans up to 3.5x average monthly payroll.
  • Eligibility would be for companies that have no more than 300 employees per entity/location, have used or will use the full amount of their first PPP, and demonstrate at least a 25% reduction in gross receipts during any 2020 calendar quarter as compared to the same quarter in 2019.
  • Eligible entities are like the first round of PPP lending but have been expanded to include certain other types of entities, most notably 501(c)(6) organizations (associations) and destination marketing organizations, but specifically excludes lobbying activities.
  • Loans of not more than $150,000 would be subject to a much more simplified application.
  • Loans would be forgivable based on similar criteria to the first round of PPP lending, but additional costs (covered operations expenditures, covered property damages during public disturbances, covered supplier costs and covered worker protection expenditures) were added to the qualified cost listing and a 60/40 split of payroll/non-payroll expenses continue to apply. An 8- or 24-week period may be used as a covered period for the forgiveness period.
  • The Act also repeals the requirement that Economic Injury Disaster Loan advances taken by borrowers be deducted from PPP loan forgiveness.

It is important to note that this new round of PPP lending is authorized to run through March 31, 2021; however, given the response to the first round of PPP loans, it would be advisable to submit an application as quickly as possible once the banks open up for accepting applications.

A few other key business economic impacts of the Act include:

  • $20 billion was allocated to provide Economic Injury Disaster Loan grants to businesses in low-income communities.
  • $15 billion was allocated to aid shuttered live venues, movie theaters and cultural institutions.

BMF Advisors are here to help you through the process of applying for a PPP Second Draw loan and can also provide assistance in applying for forgiveness for loans.


About the Authors

James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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