The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers.
This round of PPP funding includes $284 billion in additional loans for eligible businesses through March 31, 2021 and also allows some previous PPP borrowers the chance to apply for a Second Draw PPP Loan.
The announcement also included a key update that allows PPP borrowers to cover additional expenses that were not included in the first round. This flexibility in spending will make it easier for all small businesses, including restaurants, to use the funds in the areas they need most.
Here’s an overview of what’s changed since the last round of PPP loans and a look at how restaurant owners can benefit.
Along with increased funding, this round of PPP funding has a great emphasis on supporting small businesses. Here’s a look at the key changes to the new PPP loans:
Funding can also be used in more ways – including covering operations costs, coverage for software and cloud expenditures, as well rent and payroll. These new guidelines will make it easier for small businesses to stay afloat and prepare themselves for possible re-opening as vaccines rollout this year.
Funding is available for both first-time applicants and returning borrowers. Businesses that received a PPP loan during the first round of funding can now apply for what’s known as a “second draw,” provided that:
Restaurants have been hit hard by COVID-19 and this round of PPP funding specifically addresses some of the major worries plaguing business owners. Here’s a quick look at three key ways the new Paycheck Protection Program funding will benefit the food and beverage industry.
Just like before, most eligible businesses are still only able to apply for a loan equal to 2.5 times their average monthly payroll. This time around business owners in the restaurant and hotel industries can apply for loans up to 3.5 times their monthly payroll. This change can be used to improve job retention and run operational costs. The upper limit of total amount available per business, however, has changed from the previous cap of $10 million, down to $2 million.
For any PPP loan to be fully forgiven, business owners must spend at least 60% of the money on payroll expenses. However, the remaining 40% of funds can be used to cover a broader scope than previously allowed. Along with covering mortgage rates, rent, and utilities, PPP funding can also be used to cover the cost of supplier and operational costs.
This includes software fees for restaurant point-of-sale systems and other expenses needed to meet COVID restrictions. Not only can business owners use these funds to pay for any software, cloud computing, and other human resources and accounting needs, but these expenditures will also be fully forgiven provided the business complies with any additional terms of their PPP.
All PPP loans available are given to recipients tax-free, provided they’re used for authorized purposes. And while 60% of those funds must be used for payroll expenses, that might end up working in the favor of small business owners. Businesses normally deduct payroll and operating expenses from their gross income, but now, even if those expenses were largely covered by the PPP loan, they are still allowed to be included as itemized deductions. This is a huge benefit for restauranters as it allows them to lower the out-of-pocket cost of running their business, while recouping some of their lost revenue in tax breaks.