Some welcome relief

by Katherine Campbell ([email protected]) 491 views 

The CARES Act was put into place during the early stages of the pandemic, and it initially included the Paycheck Protection Program (PPP).

Through that program, businesses have received more than $525 billion in loans.

The Economic Aid Act, signed into law at the end of last year, expands and extends the PPP loan program and provides welcome relief to hard-hit businesses in the travel and tourism industries.

The stimulus bill adds $284 billion in additional funding for the program, opens up the PPP loan program to new types of borrowers, provides larger loans for those in the accommodation and food industries, and provides individual businesses with the opportunity to receive second PPP loans. Several of the bill’s provisions are of particular interest to the travel industry.

First, the PPP loan program is now open to entities that were not previously eligible, including destination marketing organizations and 501(c)(6) organizations like chambers of commerce. These entities are now eligible for PPP loans as long as they meet specific requirements related to lobbying activities, including that they do not receive more than 15% of receipts from lobbying activities, lobbying activities do not comprise more than 15% of the total activities of the organization, and lobbying activity costs did not exceed $1 million during the most recent tax year. Additionally, these borrowers must employ 300 or fewer employees to be eligible.

Second, the stimulus bill provides the opportunity for specific borrowers to take out a second PPP loan. To qualify, businesses must show a 25% or greater reduction in gross receipts between comparable quarters in 2019 and 2020. The stimulus bill also limits eligibility for second PPP loans to businesses with 300 or fewer employees, rather than 500 or fewer employees for first-time loans. It caps the total loan amount at $2 million, rather than $10 million for first-time loans. For businesses in the accommodation and food sectors, the employee threshold is 300 employees per physical location, instead of the total number of employees.

Third, the PPP loan program provides larger loans to borrowers in the accommodation and food sectors, including hotels, motels, bed and breakfasts, restaurants and bars. Businesses in these industries now may receive first-time loans in an amount of 3.5 times their monthly payroll costs up to $10 million and second-time loans in an amount of 3.5 times their monthly payroll costs up to $2 million. That is a large increase compared to other borrowers eligible for only 2.5 times their monthly payrolls costs.

Fourth, the stimulus bill provides needed clarity regarding questions left unanswered by the CARES Act. For example, we now know that a forgiven PPP loan is not treated as taxable income, and additional business expenses paid for with PPP loan proceeds are tax deductible. As a result, businesses can deduct payroll and other business expenses as usual, even if they are paid for with PPP loans.

Fifth, the stimulus bill expands the qualifying expenses for which employers may use PPP loan funds. That includes payments for software and other human resources and accounting needs, expenditures businesses have made to purchase personal protective equipment for employees, and other expenses made to comply with the state health department, CDC and OSHA guidelines related to COVID-19 protections.

The second round of that PPP program, including the changes described here, is open now through March 31.

Katherine C. Campbell is an associate in the litigation practice group at Friday, Eldredge & Clark and practices in the Rogers office. She serves as litigation counsel for individuals and businesses in complex business and commercial disputes including employment claims, collective action wage and hour claims, and breach of contract matters. The opinions expressed are those of the author.