What the New COVID Relief Act Means for Small Business

On December 27, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law. This $900 billion coronavirus relief and stimulus package is designed to help small businesses hit hard by COVID by reopening the Paycheck Protection Program (PPP) and allowing businesses with existing PPP leans to access “second draw” loans for more financial relief, among other benefits. The new relief package also clarifies PPP forgiveness rules, expands SBA loans, and changes the Economic Injury Disaster Loan (EIDL) program.

  1. Paycheck Protection Program (PPP) Updates
  2. Second Draw PPP Loans
  3. PPP Loan Forgiveness
  4. Relief Act Impacts on SBA Loans
  5. EIDL Program Updates
  6. Grants for Venues and Accommodations

The Updated Paycheck Protection Program (PPP)

The new stimulus and relief package includes an additional $285 billion in funds to the PPP, with $12 billion specifically for minority-owned businesses. The maximum amount of a PPP loan is now $2 million. New PPP loan amounts are decided by a formula that involves multiplying payroll costs by 2.5, while restaurants and other hard-hit hospitality businesses can multiple the costs by 3.5.

The new law also includes more clarification about PPP loan forgiveness. It now states that all PPP loans are not taxable and not considered income. Businesses that receive PPP loans will be allowed to deduct taxable income expenses paid for by PPP funds. This was previously prohibited by the Secretary of the Treasury, but the new act clarifies the original CARES Act did intend to allow for such tax deductions. This means businesses that receive (or received) PPP funds are allowed to deduct business expenses as if they used non-PPP funds to cover those costs.

The new package allows 40 percent of the loan to be used on items beyond just payroll. These expenses include:

  • Mortgage, rent, utilities
  • Operations expenditures (e.g., computer programs)
  • Personal protective equipment (PPE)
  • Property damage costs due to public disturbance
  • Investments in facility modifications
  • Supplier costs for supplies ordered before the loan was received, or perishable goods ordered before or during the loan

Businesses still need to spend at least 60 percent of their PPP loan on payroll expenses – which does include employer-provided group insurance.

Once opened, the deadline for new loan applications is March 31, 2021.

“Second Draw” PPP Loans

Businesses that already received a PPP loan may be eligible for a “second draw” loan for more relief funds.

Your business might be eligible for the second round of PPP funding if it:

  • Decreased 25% or more revenue in gross receipts during any quarter of 2020 (compared to the same quarter in 2019)
  • Has been in business before February 15, 2020
  • Has fewer than 300 employees per location
  • Used, or will use, an already received prior PPP loan

The relief act restricts certain companies from applying for new PPP loans. These include businesses that specialize in political or lobbying activities, are publicly traded, or are affiliated with China or Hong Kong.

PPP Loan Forgiveness for Loans Under $150,000

The PPP loan forgiveness application process has been simplified for loans under $150,000. To start the process, recipients will sign and submit a letter of certification to the SBA no later than 24 days after the new act’s enactment. The certification letter shouldn’t be more than one page long and verifies the loan’s recipient eligibility to the lender.

The letter of certification must include:

  • Number of employees the borrower was able to retain because of the covered loan
  • Estimated amount of the covered loan amount spent by the borrower on payroll costs
  • Total loan value

Relief Act Impacts on SBA Loans

The new stimulus act fundamentally changes the 7(a) SBA loan program. Starting in 2021, the SBA will increase their loan guarantee to lenders from 75 percent to 90 percent. They’ll also wave guarantee fees to all borrowers until September 30, 2021 – making 2021 one of the most lucrative times to access an SBA loan.

Prequalify for Your SBA Loan Today

The SBA will also resume paying principal and interest payments for 7(a) loan borrowers. Those who have already received six months of payments will receive an extra three months. Small business borrowers in certain hard-hit industries like restaurants, retail stores, and beauty salons will receive an additional five months of covered principal and interest payments.

Loans that are approved (not closed) between February 1 to September 30, 2021, will also receive six months of covered payments.

The relief act added limitations to the amount of payments covered, capping the SBA’s coverage at $9,000 per payment. If your monthly payment is over $9,000, you’ll pay the difference.

Other Financial Relief and Aid Programs

The Paycheck Protection Program and SBA loans aren’t the only avenues of relief for small businesses affected by COVID. The new relief act also includes changes to the Economic Injury Disaster Loan (EIDL) program and establishes new grants for live venues and accommodation businesses. 

Economic Injury Disaster Loan (EDIL) Relief Act Changes

With the act comes a repeal of a previous prevision to the CARES Act that required PPP borrowers to deduct the amount of their Economic Disaster Injury Loan (EDIL) advance (up to $10,000) from their amount of PPP forgiveness.

The relief act also added $20 billion to certain grants under the SBA’s EDIL program. Eligible businesses, independent contractors, gig workers, and the self-employed are eligible for grants up to $10,000. You may be eligible for EDIL grants if:

  • You’re located in a low-income community
  • You suffered an economic loss of more than 30 percent during an 8-week period between March 2 – December 17, 2020 (compared to a relative 8-week period before March 2, 2020, or in 2019)
  • You employ less than 300 people
  • You’re a qualifying business like a small business, private nonprofit, sole proprietorship, or independent contractor
  • You were operating by January 31, 2020

Grants for Venues and Accommodations

The relief act also includes Shuttered Venue Operator Grants, offered to live venues, theaters, and museums that have lost at least 25 percent of their revenue. These grants are aimed at specific expenses like payroll, rent, PPE, and utilities.

Venues that lost 90 percent of revenue and are considered hardest-hit are eligible for the first 14 days of the program. After that, venues with 70 percent revenue loss will be eligible for the next 14 days, followed by any and all other eligible venues.

10 Days to Implement

The new relief bill gives the Small Business Administration (SBA) 10 days from when it was signed into law to implement the new rules. Though the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act provides badly needed clarity to many aspects of COVID relief, more guidance and information can certainly be expected as the SBA begins implementing the act’s new rules. Check out SBA’s COVID Relief for more details.

Information is provided for educational purposes only and should not be taken as advice. The above is based on our interpretations, however many details are yet to be clarified. Information continues to change rapidly, so please include your financial professionals (CPA, Attorney, Financial Advisers) in any decisions.

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