PPP Round 2.0 $$$ and More Government Help That You Deserve

PPP 2.0 Everything you need to know

No fluffy introduction here. You know the deal.

If you’re here then you’re a fitness business that needs the skinny on how the new tax bill impacts your business and how to get the most upside from it. So, let me give you the need-to-know info without all the confusing details.

Skip ahead to a topic in detail: 

· PPP Loan Forgiveness Guidance

· PPP Funds Tax Exemptions & Deductions

· Paycheck Protection Program 2.0 ($$$)

· SBA Loan Payment Tax Guidance

· EIDL Grant Potential

· Expanded & Retroactive Employee Retention Credit

Would you rather listen than read? Head over to our YouTube Channel now.

There’s lot of good news, here’s the super short version:

  • · Loan forgiveness process is simplified for borrowers with PPP 1.0 and 2.0 loans of $150,000 or less. Wait to complete the application!
  • · PPP borrowers do not reduce their forgiveness amount by any EIDL advances received.
  • · Expenses paid with PPP 1.0 and 2.0 funds are fully deductible and PP funds received are tax-exempt income.
  • · Paycheck Protection Program (PPP 2.0) which includes a “second draw” option for prior PPP borrowers that have sustained a 25 percent revenue loss in any quarter of 2020 as compared to 2019.
  • · SBA 7a loan payments that were made on behalf of borrowers for six months in 2019 are tax-exempt income.
  • · SBA 7a loan payments will be made on behalf of fitness business borrowers for 8 more months beginning February 1, 2021 capped at $9,000 in total (and are also tax-exempt income).*
  • · Targeted EIDL Grant for $10,000 – if you did not receive it, you may apply for it (stipulations apply).
  • · The potential for new or increased EIDL loans remains unclear as of December 22nd, 2020.
  • · Expanded and Retroactive Employee Retention Credit – a bit unclear but guidance is forthcoming.

What we do know

There will be a new round of PPP 2.0 applications, new PPP forgiveness forms, and additional guidance on all of the bullet points above. I am confident that some of these items will continue to evolve in the future.  Stay tuned by subscribing to our newsletter, Youtube Channel, and liking our Facebook page for updates.

Let’s get into some of the specifics. Because the specifics DO matter.

PPP loan forgiveness process is simplified for borrowers with PPP 1.0 and 2.0 loans of $150,000 or less.

I’ve been saying this would happen for months and have repeatedly advised borrowers do NOT complete the PPP application. I’m not a soothsayer, but I was right on the mark here. Here’s why you should and shouldn’t complete the PPP application.

The new application will be super simple and painless. We expect the SBA to have the new forgiveness application in January 2021. It’s a simple one-pager with:

  • · Description of number of employees borrower was able to retain because of the loan.
  • · Estimated amount of loan spent on payroll costs.
  • · Total loan value.

That’s it. Easy peasy, right? We’ve previously seen the goalposts on PPP get moved closer over the past 9 months. For those keeping track, this will be the fourth forgiveness application and it’s gotten easier every time. Here’s hoping there is NOT a fifth application.

 

Wait for the new PPP forgiveness application and do not complete the PPP app if:

  • · If you don’t like paperwork.
  • · If you have an EIDL loan. PPP 1.0 forgiveness was originally supposed to be reduced by the EIDL Grant (of up to $10,000) that you received. Well not anymore. That’s a $10,000 swing. Wow, I feel bad for anyone reading this who rushed to complete the forgiveness application earlier who had an EIDL loan. Keep checking back here for future guidance so we can guide you to making the right decisions for your fitness business.
  • · If your loan is greater than $50,000 but less than $150,000. Loans in this range were previously required to file the “EZ” application which wasn’t very “easy”. While not terrible, it wasn’t as simple as many would have liked. Now borrowers in this loan amount range can fill out the simple one-page forgiveness form which is a total win.

 

Complete one of the current PPP forgiveness applications and do not wait if:

  • · Your loan is <$50,000 and you don’t mind submitting some paperwork to the lender (each lender has been requesting different evidence) AND you do NOT have an EIDL loan. But at this point, who doesn’t have an EIDL loan? Don’t have one? You should consider applying.
  • · Your loan is >$150,000 which is still subject to the existing rules. Nothing has changed here so you might as well proceed as we don’t see this changing.

There are no other considerations regarding PPP forgiveness for fitness businesses other than those listed here. If I’ve missed something or you have a unique situation email me by completing our contact form and I’ll answer your question and update the blog if needed.

Expenses paid with PPP 1.0 and 2.0 funds are fully deductible and PPP funds received are tax-exempt income.

It took an act of Congress to correct the US Treasury’s misinterpretation of the original Cares Act but we finally have it. This one has been in the news for weeks. I’m incredibly thankful for our representative getting this right (though even a broken clock is right twice a day). Rather than reducing expenses as previously determined, the forgiven PPP funds are now tax-exempt income. That means a lower tax bill this year for all PPP recipients and a little more work for you or your tax accountant at tax time, but well worth the hassle.

Paycheck Protection Program (PPP 2.0)

This is the main headliner that everyone is talking about. More PPP funds for those in need. There is $284 billion in new funds for the Paycheck Protection Program (PPP 2.0) including a “second draw” option for prior PPP borrowers. So what do you need to know? 

How and when to apply:

Applications are expected to be available around the end of the year or the top of the new year. The systems are already in place to do this, but I’ll believe it when I see it. With the holidays here, I think the first full or second week of January is more likely. As with PPP 1.0, we are expecting banks to be issuing PPP 2.0 loans (rather than the SBA issuing them directly like they did the EIDL loans) and if that’s the case we recommend using a smaller local bank or the lender you had luck with previously. We don’t expect as much of a rush this time around due to the stipulations borrowers have to meet (see more below).

Who qualifies for PPP 2.0?

If you’re reading this there is a big chance you qualify, but believe it or not, there are many fitness businesses who have been steady or even grown through the pandemic such as many 1-on-1 personal trainers and those who pivoted early to a virtual or hybrid offering have found success. So who qualifies?

  • · Must have been in business as of February 15, 2020.
  • · Less than 300 employees.
  • · Demonstrate at least 25% reduction in gross receipts in 1st, 2nd, 3rd quarter of 2020 as compared to same 2019 quarter.
  • · Applications submitted after January 1st, 2021 can use 4th quarter 2020 gross receipts and compare them to 4th quarter 2019.
  • · There are special rules for businesses not in operation in 2019.
  • · Small note: Anti-Bankruptcy Rules will continue to apply. Borrowers in bankruptcy will not be able to apply for a PPP loan based on the provisions of the proposed bill.  If in the bankruptcy process a court finds that the debtor is eligible for a PPP loan, then the loan will be given a priority claim in the bankruptcy process.

Subscribe and stay tuned for our next blog post which will walk you through how to practically apply and calculate whether your business is eligible.

How much money?

The calculation will seem familiar to many. For fitness businesses the amounts will be calculated as the greater of either:

2.5x average monthly payroll for the 2019 calendar year (January 1, 2019 to December 31, 2019)

Or

2.5x average monthly for the preceding 12 month period prior to the date of your application.

This means if your payroll costs have gone up in 2020 you may benefit from the alternative calculation. For most borrowers, this won’t be the case because in order to qualify it means business receipts are down by >25% and it would be unusual for this to happen in conjunction with increasing payroll costs. But it’s possible! So do the math for the maximum PPP 2.0 amount allowed by law.

Entities in industries assigned to NAICS code 72 (Accommodations and Food Services) may receive PPP loans of up to 3.5 times average monthly payroll costs. Unfortunately, fitness businesses are not included in the 3.5 times bucket. The fitness lobbying groups really missed out on this one. Shame shame. I cannot believe with all the restrictions that recreation services were not included here and it pains me to deliver this news while restaurants had the ability to do take out and delivery. I know accommodations and food services are struggling, but this was a big miss in my opinion.

SBA 7a loan payments that were made for six months in 2019 are tax-exempt income.

This one was a pleasant surprise. Many fitness businesses that have built out locations have SBA 7a loans where the SBA made those payments for six months in 2020. We fully expected this to be taxable income, but we were quietly hoping something like this would happen. On our clients’ books, we hadn’t yet categorized the loan payments as income and now I’m glad I hadn’t. Well, it’s official – the SBA loan payments are tax-exempt income.

SBA 7a loan payments will be made for 8 more months beginning February 1, 2021 but are capped at $9,000 in total payments (and are also tax-exempt income).

Another surprise. I still won’t be sending my state representatives any Christmas cookies this year, but for many with 7a loans this is a welcome reprieve from loan payments that were reactivated in September or October 2019. So that you can budget (you budget, right?).  This means payments will be due in January and then again in either September or when the program has made $9,000 of payments on your behalf.

For those who are have difficulty making loan payments there is a provision included in the bill that permits SBA 7a loans to be deferred for up to one year on an as-needed basis. Deferrals are not hard to obtain when working with your lender.  We have clients that have already been thru the procses and been approved. So if cash is tight, definitely look into this to give you more runway in 2021.

Targeted EIDL Grant for $10,000 – if you did not receive it, you may be able to apply for it.

There are many who did not request, received partial amounts, or requested but funds ran out. There’s a lot of stipulations here, but it’s possible to still obtain the $10,000 EIDL grant if you:

  • · Previously applied for an EIDL loan
  • · Have 25 or fewer employees
  • · Suffered an economic loss of 30% or more
  • · Are located in a low-income community as the term is defined in section 45D(e) of the Internal Revenue Code of 1986.

The potential for new or increased EIDL loans is unclear at this time.

For many in the fitness industry, the maximum $150,000 EIDL loan has been barely enough or not enough to keep them afloat. There have been funds allocated to the EIDL program, however, they seem to be largely around the $10,000 grant and continuing the existing $150,000 EIDL offering. While we were hoping for EIDL 2.0, the laws remain unclear. I remain hopeful many clients can obtain additional funding, but as of today that doesn’t seem to be the intent of the EIDL funding in this bill.

Expanded and Retroactive Employee Retention Credit

Previously this program could not be used in conjunction with a PPP loan, but the new law states that it can now be used in conjunction with PPP. There is a lot that needs to be clarified here and the SBA must release guidance within 17 days of the laws passing but this is what we’re seeing currently:

  • · A credit may be available during a quarter if your business was forced to close at any point during the quarter and/or revenues were reduced by 50% AND
  • · You paid employees wages during this period (and wages paid with PPP funds don’t count).

We’ll wait on more guidance before we make the final call on this one, but the verbiage seems to suggest we can go back to the 2nd and 3rd quarter of 2020 to claim this credit and all the way through June 30, 2021. This seems generous though we suspect the guidance provided by the US Treasury may narrow the applicability of this opportunity. Amending payroll reports to claim this credit is a lot of work, but for many, it might be well worth the investment.

Overall, there’s a lot of good news here and there seems to be something for everybody who continues to struggle through the pandemic.

A friendly reminder to be kind to your bankers, your accountants, and CPAs as we fully expect conflicting reports, clarifying guidance and will all be working over the holidays and new year to keep you up to date. And just as a general rule, be kind. This year has been hard on everyone.

As for your state representatives: continue to give them hell. They sat on their asses, collected big paychecks, and did insider trading on the backs of working-class Americans and small business owners while you waited nine months for help during a global pandemic.

As before, if you’ve read this far and still have questions we’re here to answer them as fast as we’re able. For clients – just email me.

For non-clients, please fill out our contact us form, include your question and we promise to answer it with no strings attached. Merry Christmas! We believe in this industry and we believe in you. Our first company value is “Give First” and to figure out the rest later. We intend to continue helping as many fitness business owners as possible through this crisis.

Until next time…

Sources and Citations, thank you to all those out there making content to help business owners:

 

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