Coping With the New PPP Rules

By Cliff Ennico

January 5, 2021 6 min read

Last week, Congress and the president gave small businesses across the country a belated holiday gift in the form of a new round of Paycheck Protection Program (PPP) loans.

First, some acronyms you need to wrap your brain around. The first two rounds of individual and small business loans and grants were handed out last year under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law in March 2020, creating the federal Paycheck Protection Program (PPP) loan program. The new law is known as the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, part of the Consolidated Appropriations Bill 2021, which I'm going to call PPP-2 in this column. For a general overview of the PPP program as originally enacted, see

New Money. The new legislation revives the original PPP program, which closed on Aug. 8, 2020, and includes appropriations for new loans and advances to be administered by the U.S. Small Business Administration (SBA), including approximately $284 billion for PPP loans and $20 billion for Economic Injury Disaster Loans (EIDLs). Such funding is to be made available between the enactment of this legislation and March 31, 2021.

The specific details on how these new PPP loans will be made available remain undetermined, but the legislation does mandate that a portion of the authorized funds be set aside for loans by community lenders and small depository lenders; loans to borrowers with 10 or fewer employees; and loans of no more than $250,000 to borrowers located in designated low-income or moderate-income neighborhoods. Additional SBA rule-making is due to be provided by early January.

Changes to Existing PPP Loans. PPP-2 made significant changes to the existing PPP program. The new legislation:

— Adds local chambers of commerce, housing cooperatives, certain news stations, churches and religious organizations to the list of eligible PPP loan borrowers.

— Allows some businesses to deduct "ordinary and necessary business expenses" paid for with proceeds of PPP loans even while excluding the loan proceeds from taxable income (this double dipping had been prohibited by IRS rulings).

— Provides that businesses are now eligible to receive both PPP loans and the Employee Retention Tax Credit (ERTC), whereas they were not eligible under the original CARES Act.

— Allows some businesses to receive up to $10,000 in EIDL grants.

— Allocates $15 billion in grants for small venues like independent movie theaters and concert halls that have been particularly harmed by the pandemic, with grants maxing out at $10 million (grant beneficiaries cannot, however, apply for PPP loans).

— Extends the amount of time people can collect federal unemployment benefits (pandemic unemployment assistance) and restarts a supplemental federal benefit on top of state benefits totaling $300 per week through March 14, 2021.

— Provides for a more simplified forgiveness application process for loans of $150,000 or less. The SBA is in the process of drafting updated application forms, so most accountants, tax advisors and participating PPP lenders are advising their clients to wait before requesting forgiveness until the rules are clearer.

— Expands the laundry list of expenses that can be paid from PPP loans to include business software and cloud computing (SaaS) expenses, "costs relating to damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation," certain payments to suppliers and expenses incurred by businesses to comply with federal emergency guidelines (for example, drive-through improvements, ventilation or filtration systems, physical barriers, expansion of business space and establishment of health screening capabilities).

Second-Draw PPP Loans. Certain businesses that received PPP loans during 2020 may apply for a second-draw PPP loan under the new law equal to the lower of $2 million or 2.5 times average monthly payroll costs for the one-year period before the loan is made (for accommodation and food service businesses, the multiplier is 3.5 times). Borrowers who previously applied for and returned a portion of PPP loan proceeds to the SBA can apply again for the difference between (1) the loan amount they retained and (2) the amount they could now qualify to obtain.

Borrowers who are eligible for second-draw PPP loans are capped at no more than 300 employees (rather than 500); however, borrowers that have more than 300 employees but whose primary industry is in accommodations and food service and that have no more than 300 employees per physical location will also be eligible. Excluded from eligibility are "businesses crated in or organized under the laws of China or Hong Kong, or having significant operations in China or Hong Kong, or those that are more than 20% owned by businesses in China or Hong Kong, or businesses with a Board member who is a resident of China."

Applications for new and second-draw PPP loans are open until March 31, 2021, or until funds are exhausted. To apply, contact a participating PPP lender (preferably one with which you already do business). A list of participating lenders can be downloaded in PDF format at

Cliff Ennico ([email protected]) is a syndicated columnist, author and former host of the PBS television series "Money Hunt." This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our webpage at

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