Mark Pestronk
This column contains a correction.
We are going to apply for a new Paycheck Protection Program (PPP) loan as soon as our bank begins accepting applications. Meanwhile, I have a few follow-up questions to the advice you gave in your Jan. 11 column, "Exceptions exist for PPP loan forgiveness." Let me ask them one at a time:
Q: Do we need to have the first loan forgiven before we apply for the second one?
A: No, you can apply for the new loan regardless of the status of your forgiveness application. You just have to certify that you have spent all the money on permitted purposes.
Q: If our forgiveness application is still pending, should we withdraw it and apply for forgiveness of both our first and second loans at the same time?
A: No. The mere fact that the forgiveness application is still pending does not make you ineligible to apply for the new loan. The only caveat is that, in the unlikely event that the first loan is being audited by the Small Business Administration (SBA) or information in the SBA's possession indicates that you may have been ineligible for the first PPP loan, the second loan may be delayed. Therefore, some experts are advising that, if you haven't applied for forgiveness yet, you might want to hold off until you get the proceeds of the new loan.
Q: What if I don't keep quarterly income statements? How can I show a loss of 30% for at least one quarter of 2020 versus 2019, as is required by the new law?
A: The SBA's newest rules allow you to use your annual income statements to show the loss for the year. If you haven't done an income statement for 2020, you can still apply for a loan of up to $150,000 and then submit documentation evidencing the required reduction in revenue later on, up to the date of your forgiveness application.
Q: If my agency is temporarily closed or if I am not now working in the travel business as a sole proprietor, can I still get a new PPP loan?
A: Yes, you don't have to be operating to get the new loan. As long as you certify that your closure is not permanent, you can still qualify.
Q: Will the new loan be subject to the same kind of forgiveness-reduction formulas that required that we rehire the equivalent number of full-time employees and not reduce anyone's salary by more than 25%?
A: For loans of up to $50,000, there will be no such requirements, as you will be able to obtain full forgiveness just by certifying that you spent the proceeds on allowable expenses and keeping records to show it. For loans of between $50,000 and $150,000, you still have to comply with the full-time-equivalent rule, although you can use the one-page Small Business Administration forgiveness application that does not require you to certify your compliance with those rules. For larger loans, you must certify and document compliance.
Q: If our expenses are covered by a PPP loan, can we still deduct those expenses on our company tax return?
A: The new law overrules the IRS' position that stated that such expenses were not deductible. Now, you have the best of both worlds: The PPP loan is not income, even if forgiven, and expenses paid with the loan are deductible.
CORRECTION: A portion of this column has been corrected. A previous
version of this column gave incorrect information to the question on
whether a new PPP loan would be subject to the same full-time-equivalent
and salary reduction rules as the first round of loans.