A second round of assistance is available for eligible companies, but what in the $900 billion COVID-19 relief package can potentially impact NSCA member companies?
Back in March 2020, the CARES Act, a $2.2 trillion U.S. economic stimulus package was delivered in response to the economic fallout of the COVID-19 pandemic. It included provisions that helped many NSCA member companies weather a brutal market. Notably, the Paycheck Protection Program Loan provided much needed cashflow to help keep employees on the payroll.
A new COVID-19 relief package, signed into law by President Trump on December 27, 2020, offers a second round of assistance. The Consolidated Appropriations Act, 2021 (H.R. 133) is a $2.3 trillion spending package that includes $900 billion in stimulus relief for the COVID-19 pandemic.
The 5,500-plus-page law includes a myriad of provisions for small- and medium-sized businesses to consider. The relief package may provide businesses, including eligible integration companies, with access to:
- Further COVID-19-relief options
- Previous recipients of federal COVID-19 aid may receive relief from tax-consequences associated with forgiveness of debts incurred
NSCA, as always in these matters, relies on our Member Advisory Council and our CFO Committee of integration firm finance leaders to derive the relevance for NSCA member companies.
In terms of provisions in the bill that may impact businesses such as integration companies, Bronswick Benjamin, a CPA firm on the NSCA Member Advisory Council, issued the following assessment:
Key Provisions in the New COVID-19 Relief Package (via Bronswick Benjamin):
$325 Billion in Aid for Small Businesses: The bill provides more than $284 billion to the SBA [Small Business Administration] for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding.
Tax Deductibility for PPP Expenses: Business expenses paid with forgiven PPP loans are tax-deductible. This supersedes previous IRS guidance that such expenses could not be deducted.
PPP2 Loans: Some PPP recipients may be able to apply for another loan of up to $2 million, provided they have 300 or fewer employees, have used or will use the full amount of their first PPP loan and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
Business Tax Benefits: The bill extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after December 31, 2020, and expires at the end of 2022.
Unemployment Benefits: $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from December 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, and the Pandemic Emergency Unemployment Compensation (PEUC) program.
Next Steps: What Matters for Integrators?
As with the first round assistance via the CARES act, NSCA advises member companies to act quickly with their banks to investigate if they’re eligible for this second round of pandemic aid – and, if so, take the next steps. To help you figure out how the new COVID-19 relief package may or may not apply to your business and determine those next steps, Joel Harris, COO of HB Communications and a member of the NSCA CFO Committee, offers analysis.
One important note, Harris says, is that all provisions in the COVID-19 relief package are subject to executive agency guidance. That means that that further guidelines will be created in line with law and legislative intent, which may lead to some of the narrowing of some of the provisions. “Specifically, the SBA received negative feedback on the previous first-come-first-serve award of funds,” he says. “The legislative intent of the second-round-of PPP funds is more-need-based than the previous round. Accordingly, we may see a different strategy used in selection of priority of relief-recipients then previously used by the SBA.”
HB Communications and Harris break down the following integration market specific impacts of the new pandemic relief law.
NSCA CFO Committee Advice: COVID-19 Relief Package Questions and Answers
Note that this second-round of PPP dollars is capped at $2 million per business. Affiliation rules do-not-apply, so affiliated businesses can each receive a second-round of PPP loans. As we saw with the EIDL-loan, although the statutory maximum is $2M, SBA guidance may further-reduce the maximum-loan-size.
Does your business qualify for the second round of PPP dollars? Businesses must have:
- No more than 300-employees per location and no more than 500 total
- COVID-related reduction in gross receipts by 25% or more in any one quarter in 2020, as compared to the same quarter of 2019
Note that employee-headcount will likely be based on the same “full-time-equivalency” standards as used in the original PPP guidance. This means that a part-time employee may count as less than 1 employee for the purposes of headcount.
How are loan amounts determined?
It will be similar to how the original PPP loan amounts were determined — at the election of the borrower, either 2.5 times average monthly payroll from 2019, or the 12-months preceding the loan application.
If any specific-employee receives more than $100k in annual compensation, the amount in excess will be disqualified for these calculations (e.g. $20,833 cap per employee). The costs of employee benefits are excluded from this cap — and increase the amount eligible for borrowing.
What are the first steps toward applying for a loan?
The borrower must have an SBA-approved lender, and we expect lenders will prioritize their current-clients (as they did in the last round). Accordingly, businesses interested in receiving SBA funds should talk to their banks as soon-as-possible about the banks specific-intent to participate in this program and support the business in receiving funds.
How does loan forgiveness work?
We expect that forgiveness of second round PPP dollars to be more flexible than the first-round. To qualify for forgiveness:
- 60% of the PPP dollars must be used for payroll of employees ($100k cap per employee applies), and employee benefits
- As with the original PPP loan, the remaining 40% can be used to cover rent/utilities
- Unlike the original PPP loan, this 40% can also be used to pay suppliers. (We anticipate that this will be limited to those suppliers who are providing goods pursuant to a contract/speculative inventory buying likely won’t qualify.)
What curveballs can we expect from the loan process?
- On or before January 7, 2021 the SBA will release guidance on a “second round” of PPP loans.
- Any limitations or additional requirements imposed by the SBA, as well as the mechanics for qualification/submission must be promulgated within 10 days of the bill being signed into law.
- It is possible that the SBA will further-reduce the $2M cap.
- It is possible that, unlike the first-round of PPP dollars, the SBA might place a greater-emphasis on the need of the applicants, and prioritize applications that demonstrate greater losses.
- We anticipate that, similar to the first-round of PPP, these funds will run out quickly, and those seeking the PPP dollars should communicate with their banks early to ensure that they have everything ready-to-go once applications for the program are open.
What are the tax consequences?
In the coming-weeks the IRS will retract their previous guidance on PPP relief, and there will be no negative tax-consequences for forgiveness of PPP and EIDL dollars. Forgiven PPP or EIDL dollars will be considered tax-exempt income. This provision invalidates previous IRS guidance barring deductions for PPP-covered expenses. Similarly, business owners cannot be taxed on any increased basis resulting from the forgiveness of PPP or EIDL dollars. This means that despite positive-net-income impacts of PPP or EIDL forgiveness, recipients of forgiveness will not be taxed on those positive impacts.
How does it impact unemployment benefits?
The law does provide increased unemployment benefits for individuals. When businesses are forced to implement layoffs and furloughs, those impacted employees will have greater-access to support as the country recovers from the pandemic.
Does the new law impact previously PPP loans?
It may lead to other favorable modifications to previously awarded loans. These provisions will require further-clarification from the SBA, however they may allow for an increase in the previous $250k cap on EIDL loans. They may also allow further-deferral of repayment of EIDL Loans. They may also allow adjustments/increases in loan amounts for recipients who were awarded earlier funds, prior to promulgation of updated guidance received by the later-loan-recipients.
What other noteworthy provisions are in the law?
- Certain industries may qualify for 3.5X monthly payroll for the second-round of PPP loans (still up to the $2 million). Currently these are expected to be restaurants/hotels, but the official definition may provide some relief for servicers of those industries as well.
- Certain minority/veteran owned businesses may qualify for set-aside preferences.
- Certain very-small businesses (under 10-employees) may qualify for set-aside preferences.
- The Act will also provide grants/federal dollars into the economy which presumably will trickle-down to the suppliers of the recipients of these grants/federal dollars.
NSCA members should continue to monitor our Business Continuity content for updated information about this coronavirus relief package and other resources.