By Greg Smith
Businesses which have not yet applied for the first or second draw of the Paycheck Protection Program (PPP) need to do so before March 31.
The purpose of the PPP is to allow business owners to keep their workforce in place during the pandemic and the loan can be forgivable (in whole or in part) if the funds are spent in accordance with the requirements of the program.
Now through March 10, the PPP is open exclusively to those businesses which employ less than 20 people. This will still allow larger employers to apply after March 10 so as not to miss March 31 deadline.
According to the Small Business Administration (SBA), a minimum of 60 percent of PPP funds must be spent on payroll costs (which included benefits). Additionally, funds may be used to pay mortgage interest, rent, utilities, worker protection costs related to Covid-19, uninsured property damage costs resulting from looting or vandalism during 2020, and certain supplier costs and expenses for operations.
In addition:
- PPP loans have an interest rate of 1%.
- Loans issued prior to June 5, 2020 have a maturity of two years. Loans issued after June 5, 2020 have a maturity of five years.
- Loan payments will be deferred for employers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amounts to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 or 24 weeks).
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
Certain businesses may qualify for a second draw of the PPP loan program. A business will likely be eligible if it:
- Previously received a First Draw PPP and either will or have used the full amount for authorized purposes.
- Does not have more than 300 employees, AND
- Can demonstrate a minimum of a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.
To apply, contact your lending institution or visit the SBA website for more details including locating a lender near you.
PPP loans have been an important lifeline for many businesses and have helped to ensure employees’ jobs will remain in place. Fortunately, the IRS reversed its decision regarding expenses paid with PPP loan proceeds not being deductible expenses if the loan was forgiven or if the recipient had a reasonable expectation it would be. That guidance was rescinded with the issuance of Revenue Ruling 2021-02. In short, those expenses are now deductible business expenses.
There are some indicators the economy is recovering but it is advisable that businesses take advantage of the opportunity to apply for the PPP while the program is still available. Make note of that March 31 deadline!
Greg Smith is the executive advisor of the Umatilla Electric Cooperative Business Resource Center located at 1475 N. First St., Hermiston. If you are seeking free, confidential business advising, please call 541-289-3000 or email uecbrc@gmail.com.
