On December 27, 2020, President Trump signed the into law the “Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act.” It is better (and easier) known as the Payment Protection Plan Part 2, of simply PPP2.  The legislation was included as part of a massive 5593-page federal budget.

The PPP2 opens the door for additional assistance to small businesses struggling during the COVID-19 pandemic by appropriating more than $284 million for small business loans. The loans are available through March 31, 2021 or until the funds are exhausted. Loans made under the PPP2 will be available to both first-time qualified borrowers and businesses that previously received a PPP loan in 2020.

With some exceptions, applicants for a PPP2 loan must meet the following eligibility criteria:

• • Businesses with 300 or fewer employees;
  • Has already used or will use all its first PPP loan; and
  • Can demonstrate a gross revenue decline or 25% or more in any quarter of 2020 compared with the same quarter in 2019.

Significantly and perhaps bowing to the negative press that several large borrowers received under the first stimulus law, the PPP2 reduces the amount a borrower can receive to $2 million.  That is much less than the $10 million maximum under the first PPP.  The new stimulus law also gives businesses some additional flexibility on how they spend the loaned money and simplifies the forgiveness process for loans under $150,000. The PPP2 also carves out money for minority-owned businesses and expands eligibility to more nonprofits as well as local newspapers, and TV and radio broadcasters.

For cities like Austin which rely heavily on music venues to drive tourism and tax dollars, PPP2 includes a grant program for live venues, theaters and museum operators that have lost at least 25% of their revenues.  The grant money must be used for specified expenses such as payroll costs, rent, utilities and personal protective equipment. The program will prioritize business with greater revenue losses over other businesses with lower revenue losses.

The PPP2 also made an important tax distinction for the first and second round of PPP loans.  Under prior guidance from the Department of Treasury and IRS, business owners who “reasonably believed” their PPP loans would be forgiven were not eligible to deduct the expenses covered by PPP loan proceeds.  The PPP2 undoes that guidance, specifically allows business owners to claim deductions for expenses covered by PPP loan proceeds.

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