Contractors, small business to benefit from latest round of PPP funding
Legislation approving additional and new Paycheck Protection Program loans will provide much-needed relief to many construction firms, says an industry expert.
One of the most anticipated aspects of the $908 billion coronavirus relief measure signed by President Trump last week includes $284 billion for a revamped Paycheck Protection Program.
The measure — attached to a $1.4 trillion bill set to fund the federal government through September — allows existing borrowers with less than 300 employees to apply for a second loan of up to $2 million as long as they show a revenue decline of at least 25% in at least one quarter of 2020. The legislation also features a simplified forgiveness application for loans of $150,000 or less that requires borrowers simply to state the number of employees retained and the amount of PPP funds spent on payroll.
The provisions for additional and new PPP loans and potential forgiveness will provide much-needed relief to many construction firms, according to Phillip Ross, Anchin partner and leader of the firm’s A&E and Construction groups.
“The AEC industries operate with long pipelines,” he said. “Shrinking backlogs remain a reality in the wake of the pandemic and so further relief will go a long way to ensuring that the building industry remains active.”
The relief package addresses some of the pain points that plagued prior iterations of the small-business loan platform, according to industry analysts. Chris Hurn, CEO and founder of Fountainhead Commercial Capital, told Banking Dive, our sister publication, that the simplified one-page forgiveness application for smaller loans will help both borrowers and lenders.
“It will free up the borrowers to focus on running their business, and it’ll free up the lending community to focus on taking in more applicants and helping more businesses,” he said.
The relief package also put to rest concerns that forgiven loans might be taxable, Ross said. IRS guidance in November indicated that expenses paid with the forgiven proceeds would not be deductible, potentially creating bigger tax bills for some contractors.
“With Congress making the PPP loan forgiveness non-taxable, this overrides the initial IRS ruling and will help deliver on the original intent of the law,” he said. “This will be a huge help to the AEC firms that did the right thing, according to the rules, and kept employees on payroll.”
Mike Brauneis, managing director and U.S. financial services industry leader at global consulting firm Protiviti, said the Small Business Administration’s infrastructure should be better positioned than it was in April to handle what may be a huge initial surge of applications.
“That said, the draft legislation came together very quickly and there are many fine-point details that SBA will need to issue guidance to address before banks and other lenders can begin making loans,” he said.
In addition, as businesses gear up to apply for the latest PPP loan window, they may face a smaller pool of lenders willing to participate, Hurn said.
“There’s a fair amount of PPP fatigue and burnout in the lending community right now,” he said. “I am sure there is going to be a sizable chunk of lenders that participated in the first-draw PPP loans that do not participate in the second draw.”
A little more info from recent SBA guidance
Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. The following is a summary of what is believed to be new information:
- The last day to apply for and receive a second-round PPP loan is March 31, 2021.
- If you received a first-round PPP loan, you must state that you have or will have used your first PPP loan for authorized purposes on or before the date you receive your second PPP loan.
- If your aggregate revenue is down at least 25% in 2020 compared to 2019, you are eligible for a second round PPP loan. This can be used as an alternative to the quarterly option previously offered.
- Payroll costs are now calculated on either calendar year 2020 or calendar year 2019, instead of the 12 months rolling from the application date.
- If your loan application amount is under $150K, you will not be required to provide documentation to prove your revenue loss at the time of application but will have to when applying for forgiveness.
- Gross receipts include all revenue in whatever form received or accrued (following the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
- Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.
- When making a second-round PPP loan application, you have to certify that your business is not permanently closed and require the funds to support your business’s ongoing operations.
This article was primarily written by Anna Hrushka and appeared here.