Everything That Matters About the New PPP



Last night, Congress passed a $900 billion coronavirus aid package which includes $267.5 billion for a second round of Paycheck Protection Program (PPP2) loans as wells as $13.5 billion for Economic Injury Disaster Loans (EIDLs). While many businesses are looking forward to taking advantage of a second shot at a PPP loan, this bill also addresses previous concerns regarding the first round of forgivable PPP loans. For those CPAs and firms sitting on go for their clients, it’s time to take a deep dive into the aid this new relief bill offers to your small business and nonprofit 501(c)6 clients.

First, let’s take a look at updates to the previous PPP program, specifically, deductibility of forgiven loan funds and business expenses paid using those funds. This aspect of the original PPP has been one of contention between borrowers, their advisors, and the IRS since earlier this summer when the agency announced that regular, typically deductible expenses paid for in 2020 by forgiven loan funds would not be deductible. The new bill rectifies this by clarifying that original and subsequent (new) PPP loan forgiveness is non-taxable and business expenses covered by PPP loan funds are tax deductible. This is a huge win for borrowers1.

In addition to this fix, PPP Second Draw Loans, as they are referred to in the bill, have modified conditions for eligibility. The Journal of Accountancy breaks down the stipulations for eligibility of small businesses and nonprofits nicely1:

PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:

  • Have 300 or fewer employees.
  • Have used or will use the full amount of their first PPP loan.
  • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

PPP2 also makes the forgivable loans available to Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” (as defined in the act), provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to Feb. 15, 2020. 

PPP2 will also permit first-time borrowers from the following groups:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Not-for-profits, including churches.
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.”

While PPP2 will continue to include payroll, rent, covered mortgage interest and utilities as part of the costs eligible for forgiveness, the Journal of Accountancy reports that it also leaves room for potential forgiveness for costs associated with COVID-19 protection for employees including facility modifications, personal protective equipment (PPE) and other safety compliance measures. It also covers expenditures to suppliers essential at the time of purchase as wells as operating costs associated with software, cloud computing service and accounting.

Other terms, according to the report, are as follows:

“To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.

PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.”

On the matter of simplified forgiveness, the new bill also:

“Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.

Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.”

According to section 303 of title 3 inside Congress’ 5,593-page spending package, once enacted the U.S. Small Business Administration will have 10 days to issue its guidance1. Until then, financial advisors should be sitting on go in preparation of the inevitable opening bell for PPP2 applications and staying tuned to the MICPA for updates and more regarding guidance, policy and other related news surrounding this massive new development.

201215 PPP2 - News Page Tile


  1. Consolidated Appropriations Act of 2021.” (p. 2008-2013; p. 2042-2043)
  2. Drew, Jeff. “COVID-19 Relief Bill Addresses Key PPP Issues.” Journal of Accountancy. 21 Dec. 2020. Accessed on 22 Dec. 2020.

Source: MICPA

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