2021 economic stimulus
Note: This update is as of April 2021, with an update on changes made by President Biden. Things are constantly changing, so the information needs to be verified before acting on it.
Changes to PPP
On February 23, President Biden announced changes to the PPP geared toward making the program more accessible for smaller businesses. Afterward, the SBA released further guidance solidifying these changes. Starting February 24, the SBA has established a 14-day exclusive loan application period for businesses/not for profits with fewer than 20 employees. SBA will also enact the following changes to promote equitable access to SBA relief:
Allow sole proprietors, independent contractors, and self-employed to receive more financial support by revising the PPP’s funding formulas.
Eliminate restrictions for small business owners with non-fraud felony convictions and restrictions for student loan debt delinquency.
Ensure access for non-citizen small business owners who are lawful US citizens.
It is not clear if/how this will affect applications currently in process with lenders or the SBA or whether funding will be delayed in these instances.
2nd Draw PPP update
After re-opening for business in mid-January with new appropriations of $284 billion, the PPP has had its fair share of bumps along the way. Here are some updates:
The program has had 1.9 million loans approved for approximately $140 billion in loan dollars during 2021. The average loan size of approximately $73k is considerably less than the first round, as was expected due to standards imposed.
The SBA installed more than 50 validation checks to prevent fraud and misuse of program funds. An unintentional effect of this was that many otherwise eligible borrowers were being held from receiving funds due to “hold codes” not applicable to their situation. The SBA has indicated that they are working to correct this, and on Feb. 10, 2020, issued guidance to lenders on how to bypass to allow borrowers to receive their funding.
The SBA has installed a loan cap of $35,000 per employee for funding within either a PPP1 or PPP2 loan. This cap is not specified anywhere in the legislation or subsequent guidance. However, they have been limiting certain loan amounts of borrowers for this through the SBA E-Tran system.
The SBA announced they are working with their partners to improve the “digital front door” – presumably aimed at correcting some of the hold code issues previously identified.
Employee Retention Tax Credits
Outside of PPP, the revamped ERC program has been the hottest topic of the new year for businesses in need of relief after the downturn has negatively impacted their revenues. The program, which carries a refundable $19,000 credit per employee for businesses who qualify for both 2020 and 2021, should be explored by ALL small businesses who have either had significant reductions in gross receipts or were fully or partially suspended due to government orders during 2020.
2020 Opportunity: The Consolidated Appropriations Act (“CAA”) removed the requirement that businesses cannot obtain a PPP loan and claim the ERC. This means that any business that previously obtained a PPP loan can now retroactively claim the ERC for 2020 if they qualify. The test for the 2020 ERC is that the business must have suffered either: 1) a full or partial suspension of its business operations due to COVID-19, or 2) it experienced a decline in gross receipts for any quarter in 2020 by more than 50% compared to the same quarter in 2019.
2021 Opportunity: Under the CAA, businesses can now claim an ERC for the first two quarters of 2021, and the rules are less restrictive than they were in 2020. Two key changes include: 1) the maximum credit per employee is $14,000 in 2021, compared to $5,000 in 2020; and 2) the decline in gross receipts test has been relaxed to include a decline of 20% instead of 50%. Businesses can also utilize the prior quarter to establish eligibility for the 2021 program.
Note that businesses can only claim the ERC for eligible wages not used to support PPP loan forgiveness, and this prohibition against double-dipping applies in 2020 and 2021. So the implication is to use other expenses (rent, utilities, etc.) when applying for PPP forgiveness to claim the maximum amount of payroll for ERC purposes.