Are You Ready for PPP 2.0?

by Michael L. Lauzon, CPA, MBA, Audit Partner

Posted on December 30, 2020

On December 27, 2020 a new COVID-19 relief bill was signed into law.  This relief bill contains a new version of the Paycheck Protection Program (PPP) and some updates to the old PPP that are important as well. 

New funding for PPP 2.0:

Included in the new COVID-19 relief bill is a new version of the PPP (2.0) but the qualifications for forgiveness have dramatically changed.  Under the previous PPP (1.0) the nonprofit had to believe there was economic uncertainty created by COVID-19 and as long as the loan was under $2 million the Small Business Administration (SBA) would forgive the loan.  The new PPP will allow a nonprofit that previously took a PPP loan to get a second round of funding, however the restrictions have tightened.  Now under PPP 2.0, the nonprofit must have under 300 employees and must have experienced at least a 25% reduction in revenues in at least one quarter in 2020 when compared to that same quarter in 2019.  The analysis for revenues will be based on the gross receipts.  For example if your quarter 3 2019 revenue was $100,000, then quarter 3 2020 revenue must be under $75,000 to qualify.  If your nonprofit was not in operation in the first two, three or four quarters of 2019 or did not get started until 2020 there are additional comparative criteria that might allow your entity to receive the second round of funding.  Your organization must have been in business as of February 15, 2020 in order to qualify.

The maximum amount of funding for the second round is $2 million and is based on 2.5 months of payroll.  The definition of payroll is the same as under the first version of PPP but now also includes group life, disability, vision and dental insurance.  The loan proceeds are required to be spent under the same terms as the first version of PPP (at least 60% on qualified payroll expense and no more than 40% on qualified non-payroll expenses).  The definition of qualified non-payroll expenses has expanded to include some COVID-19 related expenses such as worker protection, business software or cloud computing services that facilitate business operation and other eligible expenses.

PPP 2.0 is also available to 501(c)(6) organizations (chambers of commerce, visitors bureaus, etc.) whereas PPP 1.0 was not.  However, there are some restrictions on what the organization’s activities can be comprised of: not more than 15% of receipts from lobbying; lobbying activities must comprise no more 15% of the organizations total activities and cost no more than $1 million during the most recent tax year.

Updates for organizations that did not participate in PPP 1.0:

Now if your organization did not apply for the first round of PPP or returned the funds based on a lack of economic uncertainty or not wanting to deal with the forgiveness process, there is funding set aside in this new COVID-19 relief bill.  The terms of the loan and the forgiveness appear to be under the guidelines of PPP 1.0.  You can see our previous articles on PPP 1.0 to gain an understanding of that process.

Other changes:

One important thing to note is that there is a simplified application process for loans under $150,000 for PPP 2.0 and 1.0 loans. This simplified application will be one page and will require only a basic amount of information related to the number of employees retained, amount of loan proceeds spent on payroll and the total loan amount.  The simplified application should be released within the next three weeks.  Borrowers are expected to be able to provide documentation of the decrease in gross revenue for the selected quarters and are expected to retain all relevant documentation for four years.  Unlike PPP 1.0 there is no guarantee of a review for loans over a certain amount but any nonprofit organization that applies for forgiveness under PPP 2.0 should be ready for a review by the SBA.  The nonprofit organization will be required to select a period of 8 or 24 weeks for when the loan proceeds are to be expended.  In addition, if your organization received an Economic Injury Disaster Loans (EIDL) the advance amount will no longer be deducted from the amount of PPP forgiveness.  If you had already received forgiveness under PPP 1.0 you should reach out to your bank and check your SBA portal account if EIDL advance proceeds were deducted from the forgiven amount. 

The PPP 2.0 regulations are required to be released by the SBA within 10 days of the bill being passed and the program will be open until March 31, 2021 or until the funding runs out, whichever happens first.  The application and forgiveness process and timelines appear to be the same for PPP 2.0 as they were for PPP 1.0.  While probably not applicable to very many nonprofits, if a member of your Board resides in China or Hong Kong, your organization is not eligible to apply for funding. 

Your organization should start planning now to see if it can meet the requirements of PPP 2.0 or if you can qualify under the reopened PPP 1.0.  Organizations should start gathering the required documentation, and keep up to date on the regulations as they get released.  Just a reminder although the best things in life might be free, there is no such thing as free money, so be sure that your organization is meeting the requirements for your PPP loan forgiveness.