Three main ways small businesses can take advantage of the new Covid emergency law

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The Covid aid package has been passed by Congress earlier this week it allocated an additional $ 284.45 billion in loans to eligible companies.

The bill, which President Trump has not yet signed into law, now makes it possible for an entrepreneur to obtain a second forgivable PPP loan and puts fewer restrictions on how the loan may be used. It also relaxes the requirements to forgive small loans. And it lets companies deduct the costs their PPP loans paid for.

Plus, this time around, there are special provisions designed specifically to help restaurants and minority businesses.

“Christmas came early for small businesses,” said Chris Hurn, founder of Fountainhead, a non-bank lender who provides loans backed by Small Business Administration.

Here are some of the most important changes to the PPP loan program:

Companies are now allowed to take out a second PPP loan

Companies that received a PPP loan when the program first came into effect can apply for a ‘second draw’ as long as they are not a publicly traded company, employ no more than 300 people, have used them or will be fully use. first PPP loan, and can show a decrease in gross receipts of at least 25% in the first, second or third quarter of this year compared to the same quarter in 2019.

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Specific amounts are reserved for community development financial institutions – which typically lend to minority businesses in disadvantaged communities – and also for businesses with fewer than 10 employees, as well as those in low-income areas.

Most eligible companies can get a loan equal to 2.5 times the average monthly labor cost as before. But restaurants and lodging businesses can now apply for loans equal to 3.5 times.

No loan may exceed $ 2 million, compared to $ 10 million originally.

Streamlined forgiveness process for loans less than $ 150,000

To forgive a PPS loan, businesses that have borrowed $ 150,000 or less simply need to submit a one-page certification detailing the number of employees the company has retained as a result of the loan, an estimate of how much of the loan has been issued on payroll and the total amount borrowed. Borrowers must also confirm that the information is correct and that they are met the loan requirements.

In order to fully forgive any PPP loan, at least 60% of the money must be used for wage costs. And the remaining 40% or less can be used to cover an even broader share of operating costs than was the case during the early rounds of PPP loans.

In addition to mortgage interest, For example, rent and utilities, the loans can now be used to cover the cost of personal protective equipment and other expenses incurred to meet Covid restrictions, as well as certain operations, property damage, and supplier costs.

Huge tax break on business expenses

Businesses typically deduct their wage and operating expenses from their gross income.

But for companies that receive PPP loans, most of those costs are paid from the loan.

The latest Covid relief package makes it clear that if the loan is forgiven, it will be treated as tax-free to the business.

These small businesses may not make it out of the blue incentives

And it further clarifies that even though the tax-free loan may have paid off many wage and operating expenses, a company can still deduct those expenses on their tax returns.

Tax police experts frown on the legislature’s decision here because it is considered a “classic double dip” in the pocket of the taxpayer.

“Companies that have received PPP grants want to deduct those costs as regular business costs. But taxpayers have already paid those costs through the PPP program. Why pay them again? Well, because corporate lobbyists are very good at what they do Tax Policy Center senior fellow Howard Gleckman wrote in the TaxVox blog.

But for small businesses just trying to stay alive during the pandemic, it’s a tremendous relief as their revenues have been hit so badly and a real recovery may be long in coming for them as Covid’s limitations and consumer fears linger.

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