Lawmakers Unveil Framework of Paycheck Protection Program Round 2 for Small Businesses

A $908 billion COVID-19 economic relief package first unveiled December 1 by lawmakers is gaining traction from congressional Democrats and Republicans, sparking hope that passage could occur on or before December 18.

The plan, called the Senate “Gang of 8” Proposal, assigns $300 billion for small business support, which contains additional Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL) loans. It also includes provisions for a simplified forgiveness process for PPP loans of $150,000 or less, and it enables expenses that are paid with PPP funds to be deductible.

As for the $300 billion earmarked for small businesses, lawmakers have signaled that it is intended to assist businesses that can tangibly demonstrate economic hardship. Specifically, borrowers must demonstrate declines in revenue to qualify. The plan itself provides a second round of PPP funding (PPP2) designated for borrowers that have exhausted their share of first round PPP funds. Additionally, it broadens the universe of forgivable expenses by including supplier costs, as well as investments in facility modifications and personal protective equipment (PPE) needed to operate one’s business in a safe manner. For context, PPP loans in the first round of funding (which began more than eight months ago) provided only two-and-a-half months of covered costs.

To support their claim of economic need, businesses that seek a PPP2 loan should proactively assemble all relevant financial data prior to the opening of the application process. Examples include comparative financial reports that demonstrate a significant revenue reduction (i.e., at least 30% in any quarter of 2020), current operating expense levels, number of employees (businesses with 300 or fewer employees are eligible for PPP2), and timing of the exhaustion of initial PPP funds.

The framework around PPP2 funding likely will be similar to the first round, and loan amounts will once again be based on two-and-a-half months of payroll costs. The maximum loan amount will be $2 million, and allowable expenses are expected to be similar to the first round of PPE, noting that safety expenditures are being added. Additionally, the 60%/40% allocation between payroll and non-payroll costs will be required for full forgiveness.

Should the Senate Gang of 8 Proposal be passed in the next week or two, chances are very good it will be implemented quickly. As a result, businesses that think they may be eligible for a PPP2 loan are well advised to begin gathering and preparing appropriate documentation as soon as possible to help ensure that the application process for this second round is expedited in a timely manner.

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