fb-pixel Skip to main content

Here’s what we know about the Paycheck Protection Program in the federal stimulus bill

There are new limits on the size of loans and the size of the businesses that can receive them.

Small businesses have been particularly hard hit by the pandemic.
Small businesses have been particularly hard hit by the pandemic.Steven Senne/Associated Press

A new wave of emergency assistance for small businesses may be on the way under the COVID-19 relief measure passed by Congress this week.

The $900 billion package contains $284 billion to refresh the Paycheck Protection Program, a forgivable loan initiative that provided a vital lifeline early this year to businesses that were forced to close or lost business because of the pandemic.

But this time around, the program will undergo some significant changes. The measure would require businesses to demonstrate more clearly than in the previous program that they lost revenue this year. There are new limits on the size of loans and the size of the businesses that can receive them, and it will be possible for some recipients from the first round to again seek money.

Advertisement



Still, a lot remains unsettled about the latest measure, even after its overwhelming approval in both the House and Senate. President Trump has not yet said whether he will sign the package, as he calls for larger cash payments to individuals — something Republicans have opposed. And much of how the new program winds up working will be up to the US Small Business Administration, which is tasked with carrying it out.

Many tax and legal professionals are spending the holiday week digesting the contents of the bill, trying to get a grip on what’s ahead. They say there are some things that businesses should know now as they begin preparing to apply for help.

Banks again take the lead

Like last time, the main point of contact for businesses seeking relief will be banks and community lending programs. There are, however, some measures in the new legislation that seek to make sure banks take a more uniform approach to doling out the money than they did last time.

Businesses seeking a forgivable loan will have to show that their revenue declined in at least one quarter by 25 percent or more. That could lead to a more evenhanded distribution of money, according to Anna Dodson, a Boston-based partner at Goodwin Procter LLP who has worked extensively with PPP applicants.

Advertisement



She said the previous version relied on a business’s determination that it was in need of relief, and that employers may have taken different approaches on how to make that decision.

“There was no bright line test, she said, “so it was very difficult.”

Dodson said now would be a good time for businesses that are considering applying for PPP assistance to identify a bank to help them when the money becomes available, and to establish a relationship — perhaps by opening an account if they don’t already have one there.

Small businesses can borrow again

Loans under the new PPP would be available to new borrowers with 500 or fewer employees. Businesses that took money in the previous round will have to have 300 or fewer employees to take advantage of it again. The maximum loan would be $2 million, down from $10 million before.

Mark Misselbeck, tax principal at the accounting firm Katz Nannis + Solomon, noted that some early borrowers will be too large to participate in another round.

But for some businesses, the money could be a big help as states like Massachusetts roll back reopenings to control the virus.

“If the restrictions are so severe, the business person is going to have to evaluate whether, given their history in the restricted periods, they can survive until we achieve a greater reopening of the economy with or without PPP loans,” he said.

Advertisement



Businesses that ask for more money this time around will be required to demonstrate that they have already spent what they received earlier in the year, or that they are on their way to doing so. Businesses with substantial ties to China are also not eligible.

The program also includes set-asides for first-time borrowers, businesses with 10 or fewer employees, and community lending organizations.

But even for those who can’t participate the second time, or choose not to, Misselbeck said the new program is set to resolve a question of how PPP recipients should treat the money on their tax returns. The legislation makes clear that forgiven loans don’t count as income, and it provides a double benefit because the expenses that the money was used to pay can still be deducted.

New ways to spend

The PPP originated as a way to keep employees on payrolls even as businesses struggled, and participants in the new program will have to meet similar requirements to have their loans forgiven: At least 60 percent of the money will have to go to payroll.

Like the last time, businesses will also be able to have their loans forgiven if they spend the money on rent, utilities, and qualified mortgage interest.

But the new bill adds some additional spending categories to the list of forgivable expenses. Misselbeck said businesses will be able to spend the money on personal protective equipment, payments to suppliers who are essential to their operations, and services such as software, cloud computing, and accounting.

Advertisement




Andy Rosen can be reached at andrew.rosen@globe.com. Follow him on Twitter @andyrosen.