The last three months have been relatively quiet in regards to the Paycheck Protection Program (PPP). Since the passage of the PPP Flexibility Act and the subsequently issued Interim Final Rules and Frequently Asked Questions clarifying its content, the SBA has issued little new technical guidance.
With many questions still unanswered, the majority of borrowers are prudently waiting for clarifying information before submitting their forgiveness applications. Despite the SBA loan forgiveness application portal being open since August 10, only 2% of the 5.2 million PPP loans have submitted applications for forgiveness. To date, none have been forgiven.
On October 1, the House of Representatives passed a revised version of the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, a slimmed down version of the $3.4 trillion bill that was introduced in May but failed to garner enough votes to move into the Senate. The new bill comes at a $2.2 trillion price tag, which is much closer to the $1.6 trillion proposed by the White House than the original legislation.
Here are the key pieces of the 2,154 page bill that would impact PPP borrowers if the HEROES Act is signed into law:
- Reversal of IRS Notice 2020-32, which in essence made PPP loan forgiveness taxable to the borrower. This provision would allow borrowers to deduct expenses used towards PPP loan forgiveness and align the PPP with the intent of the CARES Act to make PPP loan forgiveness a non-taxable event.
- Creating a second round of PPP loans of up to $2 million for businesses with less than 200 employees that suffered demonstrably quarterly revenue loss of at least 25%.
- Streamlined forgiveness application process with simplified requirements for PPP loans under $150,000.
- Expansion of non-profit entities eligible to receive PPP loans to include all nonprofit organizations regardless of size or type of non-profit, with revenue reduction requirements for nonprofits larger than 500 employees.
- Expansion of expenses allowable for use of proceeds and towards loan forgiveness to include personal protective equipment (PPE), supplier costs, and costs related to property damage from public disturbances.
- Allow borrowers that returned or cancelled PPP loans to reapply for a new loan, and borrowers that took less than the full amount they were offered modification to increase the loan amount.
- Allow borrowers to use qualified wages for purposes of the Employee Retention Tax Credit if a PPP loan is not forgiven.
- Creation of a SBA Lifeline Grant Program that would provide businesses with 50 or fewer employees and that have suffered an economic loss of at least 30% grants up to $50,000 that can be used for the same purposes as the Economic Injury Disaster Loan (EIDL), to repay PPP or EIDL loans, and investments required to implement business continuity strategies during the pandemic.
- Repeal of section 1106(e)(6) of the CARES Act that requires that EIDL advance grants be deducted from the PPP forgiveness calculation.
The HEROES Act narrowly passed the House by a vote of 214-207 due to fierce GOP opposition. The Act will certainly be subject to significant revision in order to pass in the GOP controlled Senate.
Your trusted advisors at BerganKDV will continue to monitor the legislation as it moves through the Senate and will keep you informed on the provisions impacting businesses and individuals in addition to the PPP. Please reach out to discuss strategies to ensure your business is making the right decisions as changes continue to be made to this program.
