PPP round 2 forgiveness: what are the additional 2021 covered expenses compared to 2020?

In this 4-minute read:

  • What new expenses are covered under PPP round 2 forgiveness for 2021?
  • Operations expenditures, vandalism/property damage, supplier costs, worker protection expenses
  • What are the new rules for PPP loan forgiveness 2021?
  • Who can apply for a First Draw PPP Loan?
  • Who can apply for a Second Draw PPP Loan?

URGENT PPP FORGIVENESS UPDATE: On July 28, 2021, the SBA announced big news (for most PPP borrowers). The SBA has established an online PPP forgiveness platform called the SBA PPP Direct Forgiveness PortalIf your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

The Paycheck Protection Program (PPP) was renewed again in early 2021. The SBA and Treasury Department announced that the PPP would open back up the week of January 11, 2021 for new and former PPP borrowers with a new influx of $284 billion to help support America’s small businesses that have been impacted by the effects of COVID-19. As the pandemic continued to affect businesses across the country, this continued relief was intended to help businesses and their employees make it through this difficult time. So what are the new rules for PPP loan forgiveness?

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What are the new rules for PPP loan forgiveness 2021 in addition to previous expenses covered in 2020?

The first round of the PPP in 2020 was intended to help businesses remain open and keep their staff employed for the (initially) 8 weeks following receipt of PPP funds. (This has since been extended to up to 24 weeks.) To qualify for full loan forgiveness, borrowers had to use at least 60 percent of their loans to cover payroll costs (this number was originally 75% but was modified), maintain employee and compensation levels, and spent the remaining loan amount on other eligible expenses (like rent, utilities, and other things that keep the lights on… for specific details see below). 

The 2021 PPP round 2 forgiveness rules cover the previous eligible/forgivable expenses and also include some additional expenses allowable and forgivable:

  • Covered operations expenditures: Payment for any software, cloud computing, and other human resources and accounting needs
  • Covered property damage costs: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance
  • Covered supplier costs: Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan
  • Covered worker protection expenditures: Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration

In addition to the updated forgivable expense coverage, the PPP has some other key updates that may impact your business:

  • Borrowers can set their covered period for the PPP loan to be any length of time between 8 and 24 weeks
  • Eligibility has been expanded to include destination marketing organizations, housing cooperatives, and 501(c)(6)s
  • There is greater flexibility for seasonal employees
  • Certain existing PPP borrowers can modify their First Draw PPP loan amount
  • Certain existing PPP borrowers are eligible for a Second Draw PPP loan (see below)

For more details and QNA about eligible PPP expenses for 2021, please refer to our PPP forgiveness FAQs.

Specifically (for those who want details on how to spend their PPP 2021 funds), here’s what the SBA says

The proceeds of a PPP loan are to be used for:

  • Payroll costs (as defined in the CARES Act, Economic Aid Act and this interim final rule);
  • costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
  • mortgage interest payments (but not mortgage prepayments or principal payments);
  • rent payments;
  • utility payments;
  • interest payments on any other debt obligations that were incurred before February 15, 2020;
  • refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020;
  • covered operations expenditures (payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses);
  • covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
  • covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—
    • are essential to the operations of the borrower at the time at which the expenditure is made; and
    • is made pursuant to a contract, order, or purchase order—
      • in effect at any time before the covered period with respect to the applicable covered loan; or
      • with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan); and
  • covered worker protection expenditures
    • operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to the COVID– 19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19;
    • such expenditures may include:
      • the purchase, maintenance, or renovation of assets that create or expand
        • a drive-through window facility;
        • an indoor, outdoor, or combined air or air pressure ventilation or filtration system;
        • a physical barrier such as a sneeze guard;
        • an expansion of additional indoor, outdoor, or combined business space;
        • an onsite or offsite health screening capability; or
        • other assets relating to the compliance with the requirements or guidance as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and
      • the purchase of:
        • covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation;
        • particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or
        • other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and
        • such expenditures do not include residential real property or intangible property.

At least 60 percent of the PPP loan proceeds shall be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.

Who can apply for a First Draw PPP loan for 2021?

Businesses that are eligible to apply for the PPP loan must have 500 or fewer employees or meet the SBA’s alternative size standard. Eligible entities beyond traditional small businesses include nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. 

Certain existing borrowers of the PPP loan in 2020 that did not receive loan forgiveness by December 27, 2020 may:

  1. Reapply for a First Draw PPP Loan if they have returned some or all of their First Draw PPP Loans from 2020

  2. Under specific circumstances, request to modify their previous First Draw PPP Loan amount if they did not previously accept the full amount they were eligible for. 

To apply, you must do so by May 31, 2021 through an existing SBA 7(a) lender or other federally insured depository institution or lender participating in PPP. 

Who is eligible for a Second Draw PPP loan for 2021?

Businesses that wish to apply for a Second Draw PPP loan must meet the following requirements:

  • The business previously received a First Draw PPP loan and will or has already used the full amount for its authorized uses only
  • The business has 300 or fewer employees
  • The business can show at least a 25% reduction in their gross receipts between comparable quarters in 2019 and 2020

Businesses that were unable to use the full amount of their first PPP loan due to shutdowns and returned the unused funds to the government may also be eligible for a second draw PPP loan. Check with your lender. You will obviously need documentation proving the return of the unused portion of your PPP funds.

Read our article for additional details and specific questions regarding second draw PPP loans, or refer to our FAQs about second draw PPP loans

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