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How Small Businesses Can Get Help Through the New Stimulus Law

Another round of Paycheck Protection Program loans starts this month

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Help is on the way for some small businesses that are still struggling financially due to the COVID-19 pandemic. The federal Paycheck Protection Program (PPP) reopens this month with an additional $284 billion that entrepreneurs can borrow to help keep their businesses afloat. If the money is spent on payroll and other approved expenses, the PPP loan can convert to a grant that doesn't have to be paid back.

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Like stimulus checks and increased unemployment benefits, the PPP is one of the economic lifelines federal stimulus laws have created to help families and businesses weather the economic storms the pandemic has caused. While the PPP faced criticisms last year for providing loans to larger businesses that had better ties to banks, the program was still widely seen as a success for quickly getting $525 billion in federal aid out to companies.

When can I apply?

The PPP will begin accepting applications for new loans on Jan. 11 and 13, but those first two dates are available only to businesses applying for federal aid through community financial institutions focused on lending to minority- and women-owned businesses. Lawmakers added these exclusive dates to address concerns that these groups had been disadvantaged during the PPP process last year. According to a recent Associated Press analysis, in previous rounds of PPP funding, businesses in predominantly Black ZIP codes did not receive loans until the final weeks, leaving them desperate for help for months.

The PPP will start taking applications filed through small lenders on Jan. 15 and will fully open to all eligible businesses on Jan. 19, the Small Business Administration (SBA) has announced. The deadline for loan applications is March 31, 2021, though this round of the PPP could end sooner if all the money has been distributed to businesses.

If you want to apply for a PPP loan, you start the process with your business's primary bank or financial institution. You can also consult the SBA's list of participating lenders.

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I got PPP money last year. Can I get money in the second round, too?

If you're a smaller business, yes. The big criticism of last year's PPP was that larger companies grabbed big chunks of money before mom-and-pop businesses could even figure out whether to apply.

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In the first round of PPP funding, businesses with as many as 500 employees were eligible to apply. But to apply for a second PPP loan, your business can have no more than 300 employees (or 500 if it's a restaurant or hotel) and must show a 25 percent decrease in gross receipts from the same quarters in 2019 and 2020. Publicly traded companies, businesses affiliated with China, and businesses that focus on lobbying or political activities also are excluded from the second round.

How much can I borrow through the PPP?

Basically, both first- and second-time PPP borrowers can get a loan of up to 2.5 times their average monthly payroll costs, with a cap of $100,000 per employee. Restaurants and hotels applying for their second PPP loan can get up to 3.5 times their average monthly payroll costs. The maximum loan amount is $10 million for first-time PPP borrowers and $2 million for second-time borrowers.

You can set your PPP loan's covered period to range from 8 to 24 weeks.

When I file my taxes for 2020, can my business deduct expenses that were paid with a PPP loan?

Yes, you can, even if your PPP loan was forgiven. Last year, the Internal Revenue Service initially balked at this idea, suggesting that taking a deduction on a business expense that was already covered by a PPP grant would be “double-dipping."

But the stimulus legislation passed in late December that funds this second round of the PPP also specifically addresses this tax deduction issue. Both the IRS and the SBA have clarified that it is now acceptable to deduct these expenses on your business's 2020 taxes.

I'm not sure the PPP is right for me. What other federal help can my business get?

The other main federal option is the SBA's Economic Injury Disaster Loan (EIDL). These are low-interest rate loans that the government usually makes available to businesses affected by hurricanes, floods, wildfires and other natural disasters.

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The SBA has announced that businesses affected by the COVID-19 pandemic will now be eligible to apply for these loans through Dec. 31, 2021. These loans are offered at a 3.75 percent interest rate for small businesses and a 2.75 percent interest rate for nonprofit organizations. They also offer a 30-year maturity period and automatic deferment of one year before monthly payments begin. You can get more information and apply for an EIDL through the SBA.

Editor’s note: This article originally was published on Jan. 11, 2020. It has been updated with more recent information about dates the application process opens.

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