Submitted by Edward Jones Financial Advisor Kirk Doyle
If you own a business, you probably went through some dark days in 2020, given the coronavirus pandemic and its effects. And although better times may be on the horizon, things are still pretty challenging for business owners – which is why you may be interested in the recently passed legislation that provides about $285 billion more for the Paycheck Protection Program (PPP).
The PPP was originally part of the CARES Act, passed last spring after the initial shock of the pandemic forced many businesses to scale back or shut down. You may have received some funds from the first PPP distribution. If so, you know the essentials: Your PPP loan can be forgiven if at least 60% of the money is spent on employee payroll costs, with the other 40% going for other allowable expenses, including mortgage or rent payments, utilities and some types of business equipment. The most recent legislation expanded this list to include covered operations expenditures, property damage costs, supplier costs and worker protection expenditures incurred during the covered period.
Regardless of whether you received an initial PPP loan, you may be eligible for another one now. The new PPP package caps loans at $2 million and only offers second loans to borrowers with 300 or fewer employees that have experienced at least a 25% decline in sales from at least one quarter in the previous year. Also, about $12 billion has been designated specifically for minority-owned businesses, and $15 billion is set aside for smaller, first-time borrowers with 10 or fewer employees. Other organizations, such as some nonprofit groups, are also eligible for PPP loans.
The new legislation also clarifies an issue that had concerned borrowers the first time around. When the PPP was introduced, the IRS and Treasury Department ruled that business expenses paid for with PPP funds could not be written off like typical business expenses. The new legislation reversed this position – business expenses paid with PPP proceeds are now tax deductible.
If you had previously applied for PPP funds, you’ll find the process for the new round of loans to be quite similar. You can apply though any existing Small Business Administration lender or through a participating bank or credit union, but you can start the application process by visiting the Small Business Administration’s website at sba.gov. If you didn’t apply for a loan the first time, don’t panic. Before you file for the loan, you’ll just need to collect all your paperwork, including your most recent tax filings, payroll reports, mortgage or rent documents, utility statements and documented verification that the pandemic has damaged your business.
Also, be prepared to be persistent after you apply. The loan-servicing providers genuinely want to help, but they are likely to be swamped with applications, so it won’t hurt for you to get to know your loan officer and to follow up with questions and concerns. You also might want to consult with your tax and legal advisors before applying for a PPP loan or discuss the tax treatment of business expenses paid with PPP proceeds.
Hopefully, once widespread vaccinations are available, business restrictions will be lifted and you can breathe a sigh of relief. Until then, you may find that a PPP loan can be a lifeline.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones. Member SIPC.