Deadline Approaching: Paycheck Protection Program Loans Expanded to include Trade Associations
By Allie Kafer, CPA
The 2021 Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act signed into law on December 27, 2020 expanded the terms of the Paycheck Protection Program (PPP) to include organizations described in section 501(c)(6). The act provides another $284.5 billion in funding for PPP loans. The loans under the second round of PPP funding can either be First Draw Loans for organizations who did not receive funding in the first round, or Second Draw Loans for those who did receive funding in the first round. The SBA began accepting PPP applications from lenders on January 13, 2021 and the last date to apply is March 31, 2021.
In order for a 501(c)(6) organization to qualify for the PPP funding, there are some conditions that must first be met:
- Employees - Has 300 or fewer employees
- Lobbying Activity - Organization does not receive more than 15% of revenue from lobbying, lobbying activities do not comprise more than 15% of total activities, and the cost of lobbying activities did not exceed $1M during the most recent tax year that ended prior to 2/15/2020
If the organization happened to apply for First Draw PPP funding, completed an 8-week covered period, and applied for forgiveness before March 31, 2021, they could be eligible for a Second Draw PPP loan. In addition to the criteria noted above, the organization would need to show a 25% reduction in gross receipts from any quarter in 2020 compared to the same quarter in 2019 to qualify for a Second Draw PPP loan.
The requested amount of the PPP loan is calculated by first finding total payroll costs for the year (either 2019 or 2020 calendar year, excluding any amounts in excess of $100k for any individual), dividing annual payroll costs by 12, and multiplying by 2.5. Payroll costs include gross wages, employer paid health and retirement benefits as well as state unemployment taxes. It is important to keep in mind that payroll costs must equal at least 60% of the requested loan forgiveness amount when forgiveness is calculated.
In addition to the expenses that were eligible to be used for the First Draw PPP funding (payroll costs, rent, covered mortgage interest, and utility payments), the following expenses can now be included in determining loan forgiveness:
- Covered Operations - payments for business software, cloud computing and other human resources and accounting needs
- Covered Property Damage - costs related to property damaged during the 2020 public disturbances that were not covered by insurance or other compensation
- Covered Supplier Costs - expenditures to a supplier of goods that are essential to the operations of the business and made pursuant to a contract/order/purchase order in effect before the covered period
- Covered Worker Protection Expenditures - Personal Protective Equipment (PPE) to comply with federal, state or any local health guidance requirements
It is important to note the SBA has specifically pointed out that PPP funding cannot be used on lobbying expenditures.
Borrowers must also make a good faith certification that the uncertainty of economic circumstances makes the PPP loan request necessary to support ongoing operations.
Need assistance or guidance in the application process? We are here to help! Please contact your MHCS advisor.
Allie Kafer, CPA | Supervisor