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Hi ,
Below are details of small business provisions of the new stimulus package as I know them and as importantly: What you should do immediately to take advantage of these programs.
Late last night, after months of delay by the Senate, Congress finally passed a new stimulus package which includes many provisions relating to small businesses and the self-employed. This is a long, detailed newsletter, as I hope to answer many of your questions. This is based on legislation, not the regulations that will come out sometime soon to clarify some of these issues.
Stay connected to me—via this newsletter and my social media feeds—as I will continue to update information as I get it. I will hold a Facebook Live as soon as I have more details to help answer your questions.
Top Issues
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If You've Already Received PPP Funds
New treatment of PPP expenses. Expenses used for PPP forgiveness are now TAX DEDUCTIBLE. When Congress passed the CARES act, they indicated that PPP funds should NOT be taxable. However, Treasury Secretary Mnuchin decided businesses could NOT deduct expenses used to qualify forgiveness—thus making an equivalent amount to PPP funds taxable. This legislation corrects Mnuchin’s actions.
Simplified Form for Forgiveness. If your PPP loan was for $150,000 or less, there will be a new, simple, one-page form to apply for forgiveness. Your lender should provide you a link to a form soon in the new year.
More expenses qualify for forgiveness. While you still need to use at least 60% of PPP funds on "payroll expenses," qualifying non-payroll expenses are much broader, now including payment for software, cloud services, accounting & HR, property damage due to civil unrest, PPE and Covid-prevention equipment and, importantly— supplier costs that were contracted or ordered before you got the loan or costs of perishable goods ordered before or during the life of the loan. (All these had to be paid during the forgiveness period, of course.) This should help companies that have high, non-rent and non-utility expenses.
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New Round of PPP Funds Whether or not You've Received PPP Before
Here’s VERY GOOD NEWS. Congress passed $284 billion for another round of PPP loans.
You can apply for a new PPP forgivable loan, whether or not you received one before. This can be your first or second PPP loan. You cannot get more than two.
Eligibility:
- Your Income—GROSS RECEIPTS—must have declined by 25% or more in any quarter of 2020 compared to 2019. While Senator Marco Rubio (R-FL), head of the Senate Small Business committee, wanted this number to be at least a 50% loss, others pushed back and successfully got the amount lowered to a more appropriate loss of 25% of gross revenues, meaning many more struggling small businesses will get help. Gross receipts are likely to exclude funds from PPP loans or other loans or grants. This loss must be measured by a quarter of 2020 (Jan-Mar, Apr-June, July-Sept, Oct-Dec) and not just a three-month period. All or some borrowers may also have to indicate that the loan is an economic necessity. There are also provisions for seasonal businesses to adjust the time periods.
- You must have been in business prior to February 15, 2020.
- You have used, or will use, all of your previous PPP loan if you received one.
- You have fewer than 300 employees in any one location.
- Qualified businesses can be corporations, LLCs, sole proprietors, self-employed, independent contractors.
- No loan can be greater than $2 million.
How much can you get? For most businesses, the amount you can apply for is, as before, the amount of your average monthly payroll in 2019 or the year before your loan times 2.5. This is the same as the previous round of PPP.
For accommodation and food service businesses, the amount you can apply for is your average monthly payroll in 2019 times 3.5.
Forgiveness. You can get forgiveness for this PPP loan by spending at least 60% on payroll expenses (wages, salaries, retirement, group health insurance, etc.) and a maximum of 40% on qualifying expenses during an 8- or 24-week period. (See above.)
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PPP Set Asides for Certain Small Businesses
Because the smallest businesses and those located in low and moderate income areas were often shut out of the first round of PPP funding, this bill includes set-asides for small businesses with fewer than 10 employees, those in low/moderate income areas, and funds for small community banks, credit unions and community-based lenders. This will hopefully level the playing field, making it easier for smaller, needier businesses to get these forgivable loans.
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Grants for Cultural, Arts, Live Events, Theaters, Smaller Cultural Providers
$15 billion in grants not loans were included for certain live event, movie theatres, museums, and other cultural providers.
Small cultural providers, artists, etc. should MOVE FAST. This appears to be designed primarily as a bailout for large movie theatre chains, that will also be eligible for these funds and can get grants of tens of millions of dollars. Smaller venues and cultural providers theoretically go to the front of the line, but if you’re not ready to apply as soon as these are available, you’re probably going to get left behind. PAY ATTENTION!
- Eligibility: live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate at least a 25 percent reduction in revenues.
- Smaller providers: $2 billion was set aside for those with 50 full-time employees or fewer, but set aside only for 60 days. After that, those monies are available to larger businesses as well. (So it will be easy for smaller businesses to get left out.)
- In the initial 14-day period, grants will be awarded to eligible entities that have faced 90 percent or greater revenue loss. This may include large chains.
- In the 14-day period following the initial 14-day period, grants will be awarded to eligible entities that have faced 70 percent or greater revenue loss.
- After these two periods, grants shall be awarded to all other eligible entities.
- Grants to be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
- Initial grant can be up to $10 million, and a second grant could be up to 50% of the first grant. In other words, a large chain could get $15 million in GRANTS.
The amount of grant appears to be up to 45% of your 2019 revenue or 85% of 2019 operating expenses, but I am not clear on that yet.
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Grants for EIDL Advances and Other Changes to Program
When EIDL (Economic Injury Disaster Loan) grants were passed by Congress, they allowed for a $10,000 “Advance” to be treated as a grant, not a loan. Trump’s SBA unilaterally scaled back that grant to only be $1000 for each employee, counteracting Congressional intent. This addresses that issue.
- Businesses in low-income communities that received an EIDL loan can get a grant equal to the difference of what they received and $10,000.
- Eligible Businesses in low-income communities that did not get EIDL loans/Advance grants because funds had run out can now get $10,000.
Also, if you previously received both an EIDL Advance grant and a PPP loan, you had to deduct the advance from your PPP forgiveness amount. You now no longer have to deduct that amount from forgiveness.
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What You Should Do Immediately
ACT FAST. What small businesses learned the last round of PPP funding was that if you snooze, you lose. You should be prepared to apply for everything THE VERY FIRST DAY IT BECOMES AVAILABLE.
Here’s what you should do:
- Figure out your income by quarters this year versus 2019. Many small businesses have lousy records, but you’re going to have to certify at least a 25% drop in gross revenues (minus PPP and, I suspect, unemployment or other grants). Get this info together now. Spend some time over the holidays getting your finances together!
- Contact potential lenders. Line up a few potential lenders. Contact local banks, community lending institutions, credit unions. Ask whether they’re going to participate in the next round of PPP lending. Try to connect with an individual lending officer. Find a couple lending sources.
- Set up business banking. If you don’t already have a business bank account, get one.
- Pay attention. Keep a close eye out for application openings and deadlines. Apply DAY ONE for everything you even potentially qualify for.
Don’t pass this opportunity up! Depending on what happens in the two Georgia Senate races, this may be the last Congressional help that comes to small businesses. If history is any predictor, if Mitch McConnell maintains control of the Senate, it is likely he’ll block any
meaningful legislation for small companies in 2021 as he has blocked stimulus legislation for the last six months.
PLEASE PASS THIS INFORMATION ON TO YOUR SMALL BUSINESS AND SELF-EMPLOYED FRIENDS AND COLLEAGUES. I want to see every qualified small business get the help they need to
survive and thrive, so please share this information, so they can be prepared as soon as the applications for these programs become available.
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Stay well, stay in business,
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Rhonda Abrams, CEO PlanningShop
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Never miss Rhonda's USA Today column!
Click here to read Rhonda's latest small business column.
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The Sh*t's Hit the Fan...Now What?! 99 Recession-Proof Tips for Small Business Success
The business world as we know it has been turned upside down overnight by Covid-19. Perhaps there has never been another time when the economy has changed so radically so fast. How do you—as a small business counselor—help your clients navigate this new world? In this new book, I share specific do-it-now strategies to help small businesses survive—even thrive—in this Covid-19 world.
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