December 30, 2020

Major Changes to the PPP Explained

President Trump recently signed into law the Consolidated Appropriations Act of 2021, which in part, allocates roughly $284 billion towards replenishing the Paycheck Protection Program. The initial PPP program was far from perfect, leaving some unfortunate businesses unable to secure funds. The businesses that did receive a loan were surprised by a tax provision disallowing deductibility of expenses paid using PPP funds. This time around, Congress intends to fix the flaws that reduced the effectiveness of the initial program. In this article, we break down the key changes to the PPP relevant to insurance agents and their business clients.

What Changes Were Made to the Paycheck Protection Program?

As mentioned above, congress sought to improve upon the last round of loans by instituting additional requirements and provisions. These changes provide loan recipients with additional aid and make it harder for profitable businesses to utilize these funds. Insurance agents needing a refresher on what the PPP program is and how it works are encouraged to review our previous blog post summarizing the program. Below are the key changes to the PPP:

Business Expenses Paid With PPP Funds are now Tax Deductible

When the first round of the PPP was passed back in April, businesses could only use PPP funds for specific expenses, including payroll and rent, for the loan proceeds to be forgiven in full. However, the IRS would not allow businesses to deduct these normally-deductible expenses, arguing that businesses would be receiving a double tax benefit in the form of an income-tax free loan plus deductible business expenses. Congress has amended this rule and now businesses can deduct expenses paid with PPP funds. This new rule also applies to loans received in the first round, and will provide businesses with additional relief during tax season.

Maximum Loan Amount is Decreased

The first round of PPP loans allowed each applicant to receive up to $10 million in loans. Now, that cap has been reduced to $2 million. While most loan recipients did not receive anywhere near this amount, the decreased cap should allow the Small Business Administration (SBA) to distribute the funds to a larger pool of struggling businesses.

Applicants Must Demonstrate Losses

Recipients of the new round of PPP loans must prove to the SBA that they suffered at least a 25% drop in revenue during any single quarter between  the fourth quarter of 2019 to the fourth quarter of 2020. All applicants for PPP loans must show this loss to be eligible to receive a loan. This new requirement should prevent businesses who are not struggling from receiving funds. Businesses who already received loans in the initial round of PPP payments do not need to do this. However, businesses applying for a second PPP loan will need to demonstrate these losses

Increase in Forgivable Expense Categories

The new round of PPP loans increases the number of expense categories that qualify as forgivable expenses under the plan. Most notably, businesses who seek to comply with sanitary and social distancing requirements are able to use these funds for that purpose.

Covered Period

Businesses who receive a PPP loan are now able to spend the funds over a coverage period of not more than 24 weeks after loan funding to qualify for forgiveness. The initial covered period was limited to 8 weeks from the date of the loan funding.

Employee Retention Tax Credit

The Employee Retention Credit provides businesses with a refundable tax credit equal to 50 percent of the qualified wages paid to employees from March 12, 2020 through January 1, 2021. Initially, businesses who received PPP funds were disqualified from receiving this tax credit. The new bill changed course on this and allows all businesses, including those who received PPP funds, to be eligible for tax credit.

If I Already Received a PPP Loan, Am I Eligible For Another One?

Yes, businesses who received a PPP loan as part of the CARES Act are eligible to apply for the new round of relief. The application process remains the same as before, except businesses with over 300 employees (originally 500) are not eligible to receive loans.

How is Loan Forgiveness Impacted?

Initially, businesses who received less than $50,000 in PPP were only required to submit a brief description to the SBA detailing what portion of the funds were used on payroll and how many employees were retained as a result of the loan when applying for loan forgiveness. The SBA did not require further documentation for forgiveness on loans of less than $50,000. Under the new legislation, businesses who received up to $150,000 in loans are also able to utilize this streamlined process to apply for loan forgiveness. Businesses who received over $150,000 in PPP loans will need to complete a far more comprehensive loan forgiveness application and provide supporting documentation verifying that the funds were used for their intended purposes.


12 thoughts on “Major Changes to the PPP Explained”

  1. Interesting. I read it and I don’t believe it says 25% total revenue reduction , instead it says 25% reduction in any one quarter. (even if the total revenue was not down 25% . Am I incorrect?

    1. Hi Denise,

      Thank you for your bringing this point to our attention. You are indeed correct, and we have updated the article to provide more clarity on the subject.

    1. Hi Alan,

      The SBA has yet to issue final guidelines related to the new round of PPP loans. According to our understanding of the bill text, all new applicants for PPP loans will need to prove a 25% loss, even if they were previously issued a loan.

    2. Is loss measured by gross or net revenue?
      I.e. gross revenue stayed flat but payroll or other expenses increased

  2. Are previous PPP Loans for less than $150,000 also eligible for the EZ form under this new PPP Program?

  3. Last year I was required to submit a lot of payroll verification documents and was still squeezed out by the Big Boys. Will that be necessary this time? Just how simplified will the procedure be?

    1. Hi Ed,

      If you received less than $150,000 in PPP loans then you will need to complete a 1 page loan forgiveness application detailing what the funds were used for. Businesses who received more than $150,000 in PPP loans will need to submit additional documentation verifying that the funds were used for the intended purposes when submitting their loan forgiveness application.

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