Question & Answer - Coronavirus Response and Relief Supplemental Appropriations Act of 2021

January 29

On December 27, the president signed into law the Coronavirus Response and Relief Supplemental Appropriations Act of 2021.

As a result of significant engagement and advocacy on the part of the American Camp Association (ACA), this law includes a number of provisions to support camps that have been suffering significant financial impact from the pandemic. It includes a provision to allow camps that could not modify their original Paycheck Protection Program (PPP) loans to take advantage of a summer date field that was added late in the process an opportunity to amend that loan. That provision only exists as a direct result of advocacy on the part of ACA.

Also, the bill provides an opportunity for many businesses significantly impacted by the coronavirus, including many camps, an opportunity for a second draw PPP loan. Again, because of our advocacy, this second draw explicitly allows the use of a summer date field in calculating a loan amount. Additionally, it allows businesses with a North American Industry Classification System (NAICS) code that starts with 72, which includes many camps, an opportunity for a larger loan. This provision resulted from the significant educational efforts the ACA team undertook to help our lawmakers understand the impact on such an important industry.

Following is a Question & Answer resource to help camps understand many of the various provisions in the law. ACA will continue to update this resource as new information becomes available.

The Small Business Administration (SBA) also provides updated resources on their SBA PPP web page, including information on how to apply for an amendment of an initial PPP loan or apply for a second draw PPP loan.

General Questions


When will SBA begin accepting applications for PPP loans as a result of this relief bill?

Both first and second PPP loans are available now.

Press Release: SBA and Treasury Announce PPP Reopening

 

What steps do I take to modify my existing PPP or apply for a second draw PPP loan?

The applications for both first and second PPP loans are linked below in the appropriate section. It is expected that the majority of lending institutions will have access to PPP funds designated in this relief bill at some point on the week of January 18.

The first step is to reach out to your lending institution and begin a dialogue about your company’s needs related to the PPP provisions in this bill. Your lender should be able to walk you through considerations related to qualification to discuss their individual process requirements for applying and their sense of timing.

Secondly, review the linked applications and begin to pull together the information required by both the SBA and your lending institution so that you are ready to apply once applications become available.

 

Resources for targeted communities:

The new relief bill directs the SBA Administrator to issue guidance addressing barriers to access to capital for underserved communities no later than 10 days after enactment. That guidance is listed below.

Accessing Capital for Minority Underserved, Veteran, and Women-Owned Business Concerns Guidance (Released 1/6/21)

 

First PPP Loan Modifications


Updated First Draw Forms

 

Have the allowable expenses for original PPP loans been modified?

Yes, so long as the loan has not already been forgiven.

In addition to the already allowable expenses for PPP loans, the new bill makes the following expenses also allowable and forgivable uses for Paycheck Protection Program funds:

  • Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
  • Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
  • Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
  • Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19.
  • Other insurance benefits. Clarifies that other employer-provided group insurance benefits are included in payroll costs. This includes group life, disability, vision, or dental insurance.

 

What is the “Form 1502 Fix” and how might it benefit camps?

A technical challenge in the original PPP prevented the majority of camps from maximizing their loan amount. The original program disadvantaged summer seasonal businesses by not allowing the use of a summer date field to calculate the loan amount. While the SBA did add a summer date field on April 27, the majority of banks had officially booked their loan by filing a Form 1502. The guidance prevented the modification of a loan after Form 1502 was filed, essentially blocking most camps from taking advantage of revised guidance.

The new relief bill includes a provision that allows any business that was not able to take advantage of changes to guidance to the program a one-time opportunity to modify their original loan, even if a Form 1502 has been filed.

Reference this SBA resource on How to Calculate Your PPP Loan Amount.

 

Can I amend my first PPP loan even if my bank has booked the loan?

Yes. The new bill is very clear that organizations that were not able to take advantage of revised guidance, such as the late addition of a summer date field, should be allowed a one-time opportunity to modify their loan even if the loan has been booked and a Form 1502 has been filed.

 

What is the process for modifying my original PPP loan?

The SBA will work with individual lending institutions to develop a process to accommodate this provision of the new relief bill. It is likely that lending institutions will develop a specific process for their lenders in order to modify their loans. It is likely that these provisions will be different between different institutions. The best approach will be to reach directly out to your lending institution to inquire about their specific process.

 

Are the proceeds from the original PPP loan deductible?

Deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. This provision of the law corrects an interpretation given from Treasury regarding the deductibility of otherwise deductible expenses, clarifying the original intent of Congress.

 

Can a PPP loan that has already been forgiven be amended?

No. At the current time, loans that have been forgiven are not eligible. ACA is working with the SBA on either the potential to modify this limitation or provide additional solutions for camps that have already had their PPP loan forgiven.

 

Has the timeline for PPP loans been changed?

Yes. The new bill opens both first and second draw PPP loans until March 31, 2021, or until the allocated funding for the program has been exhausted.

 

Is there a deadline for having your first loan amended?

Yes. Loan amendments will only be available through March 31, 2021. However, with a limited amount of money allocated and significant need across the country, it is possible that the fund will be exhausted before all the need is met. As such, camps should consider applying as soon as they are able.

 

Do Economic Injury Disaster Loan (EIDL) grants have to be deducted from the PPP forgiveness calculation?

Not anymore. While that was originally the case, this bill repeals section 1110(e)(6) of the CARES Act, which requires PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount.

In addition, it requires that the Administrator shall issue rules that ensure borrowers are made whole if they received forgiveness and their EIDL was deducted from that amount.

It also provides that EIDL Advance borrowers should be made whole without regard to whether those borrowers are eligible for PPP forgiveness.

 

When should I apply for forgiveness of my PPP loan?

There is a strong expectation that the Biden administration will continue to adjust both the PPP and the ERTC program to allow for the maximum benefits to be received by impacted businesses. These adjustments may include simplifying the methods for applying for PPP forgiveness or increase the non-payroll qualifying expense. Delaying an application for PPP forgiveness until it is required will allow camps to continue to take advantage of additional modifications to the program.

 

Is the process for applying for PPP loan forgiveness being simplified?

For loans under $150,000, the process for applying for forgiveness will be simplified. That said, the SBA has not issued guidance with the specifics on this process yet. In addition, there is some speculation that the new Biden administration may continue to simplify the process in order to maximize the benefits businesses are receiving from this program. As such, many businesses are delaying application for forgiveness until it is required so that they can take advantage of any updates in guidance.

 

PPP Second Draw Loans


Second Draw Forms

 

How do I know if my business is eligible for a second draw PPP loan?

Generally, to receive a Paycheck Protection Program second draw loan under this section, eligible entities must:

  • Employ not more than 300 employees
  • Have received a first PPP loan
  • Have used or will use the full amount of their first PPP (including the amended loan amount)
  • Demonstrate at least a 25-percent reduction in gross receipts in the first, second, third, or fourth quarter of 2020 relative to the same 2019 quarter

Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.

 

What are the maximum allowable loans for second draw PPP loans?

Second draw PPP loans have a maximum loan amount of $2 million.

 

How are second draw PPP loan amounts calculated?

In general, borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. No loan can be greater than $2 million.

Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019, through February 15, 2020. The bill defines a seasonal employer to be an eligible recipient which: (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year.

New entities may receive loans of up to 2.5 times the sum of average monthly payroll costs.

Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5 times average monthly payroll costs.

Reference this SBA resource on How to Calculate Your PPP Loan Amount.

 

I read that some industries can receive loans up to 3.5 times their average monthly payroll. How do I know if my business fits that category?

For most businesses, borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. However, entities in industries assigned to NAICS code 72 (Accommodation, Food Services, and some Recreational Camps) may receive loans of up to 3.5 times average monthly payroll costs.

Go to NAICS Association to determine your NAICS code.

Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019, through February 15, 2020. 

 

Have the allowable expenses for second draw PPP loans been modified?

Yes. Similar to the original PPP, borrowers of a PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period.

The new bill makes the following expenses allowable and forgivable uses for Paycheck Protection Program funds:

  • Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
  • Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
  • Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
  • Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19.
  • Other insurance benefits. Clarifies that other employer-provided group insurance benefits are included in payroll costs. This includes group life, disability, vision, or dental insurance.

The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.

 

How soon will you be able to apply for a PPP loan?

Both first and second PPP loans are now available.

 

Are the proceeds from the original PPP loan deductible?

Deductions are allowed for otherwise deductible expenses paid with the proceeds of a second PPP loan that is forgiven, and the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act and effective for tax years ending after the date of enactment of the provision.

 

When does the relief period for second-draw PPP loans begin?

Currently, there is a requirement that funds from an approved second-draw PPP loan be dispersed within 10 days. The 24-week coverage period begins as soon as the funds are received.

Clearly, this is challenging for summer-seasonal businesses, as 24 weeks from now does not fully cover the summer season in which peak payroll expenses are incurred. ACA is working with the SBA to modify this guidance for summer-seasonal business in order to allow them to include their peak payroll season in the period, thus maximizing the opportunity for forgiveness.

Some camps are working with their lending institutions to prepare to apply, but are holding off on submitting the final application until later in the year in order to include as much of the summer season as possible. There is a significant danger in this approach, as there is a chance that the PPP funds will be fully expended before an application is approved.

 

Employee Retention Tax Credits

Can I apply for both a PPP loan and an Employee Retention Tax Credit (ERTC)?

Yes. The new relief bill modified earlier guidance, and now business are able to apply for both a PPP loan and an ERTC. That said, funds that are used as qualifying expenses when applying for the forgiveness of a PPP loan cannot be used to qualify for an ERTC. That is to say, you cannot “double dip” and use the same payroll expenses to qualify for both relief programs. Payroll funds that are not included in your PPP forgiveness application can be used to qualify for ERTC benefits.

 

Can I apply for an ERTC for both 2020 and 2021?

Business are allowed to apply for a refund of payroll taxes paid in 2020 in addition to applying for the ERTC in the first two quarters of 2021. The benefits for each year are different, with 2021 benefits more generous than the 2020 benefits.

If you have already filed your Employees Federal Tax Return for 2020, you have either two or three years (depending on several variables) to file a 941X form and request the ERTC.

 

What are the 2020 benefits for the ERTC?

The 2020 ERTC allows businesses to apply for a refund of certain employment taxes equal to 50 percent of the qualified wages an eligible employer paid to employees after March 12, 2020, and before January 1, 2021. Wages up to $10,000 per employee may be counted to determine the 50 percent refund, resulting in a maximum refund of $5,000 per employee.

 

What are the 2021 benefits for the ERTC?

The 2021 ERTC allows businesses to apply for a refund of certain employment taxes equal to 70 percent of the qualified wages of an eligible employee, up to $10,000 for the first quarter of 2021. Unlike the 2020 program, the program can be applied again in the second quarter of 2021 if the business can demonstrate a 20-percent reduction in revenue of that quarter as compared to 2019. As such, a business could receive a credit of up to $14,000 per employee in the first six months of 2021.  

 

How do I qualify for an ERTC?

There are two methods of qualifying for the ERTC. The first is triggered by a full or partial suspension of the operation of a business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19. The second method of qualification requires a demonstration of a reduction in gross receipts in as compared to the same period in 2020. 

The gross receipts method, in many cases, is less complicated to demonstrate than the suspension of operations and will be the better method for many camps.

For 2020, a camp will need to demonstrate a 50-percent reduction in gross receipts in any single quarter of 2020 as compared to 2019 to qualify. If the following quarter shows a decrease in gross receipts of only 20 percent as compared to 2019, it can be used as well.  

For 2021, a business must be able to demonstrate a 20-percent reduction in gross receipts in the first quarter of 2021 as compared to 2019 to qualify for the program.

 

How do I maximize the benefits from both the PPP and ERTC programs?

Funds used to qualify for forgiveness of a PPP loan cannot also be used for the ERTC. That said, if an employer has excess payroll costs in 2020 above the amount used for forgiveness for a PPP loan, the ERTC will provide additional financial relief.  

Camps should work with their tax advisor and lending institution to determine the method for structuring their PPP forgiveness application in a way that maximizes the amount of relief provided by the ERTC, as the formulas can be complicated. Maximizing non-payroll expenses that qualify for forgiveness under the PPP program allows a camp to also maximize the benefit from the ERTC. Here are good examples of how the two programs can be structured to maximize relief (thank you to Andrew Ziv for sharing these examples).  

 

Economic Injury Disaster Loans


Is the forgiveness of EIDL considered a part of gross income?

This bill clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance, each as provided by the CARES Act.

 

Are the proceeds from the EIDL deductible?

The bill clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income, such as EIDL, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after date of enactment of the CARES Act. The provision provides similar treatment for Targeted EIDL advances and Grants for Shuttered Venue Operators, effective for tax years ending after the date of enactment of the provision.

 

Are additional advances for EIDL available?

This bill provides additional targeted funding for eligible entities located in low-income communities through the EIDL Advance program from Section 1110 of the CARES Act.

It also allows entities in low-income communities that received an EIDL Advance under Section 1110 of the CARES Act eligible to receive an amount equal to the difference of what the entity received under the CARES Act and $10,000.

The bill does provide $10,000 grants to eligible applicants in low-income communities that did not secure grants because funding had run out.

Procedural Notice — SBA Procedural Notice on Repeal of EIDL Advance Deduction Requirement (Released 1/8/21)