Good news for businesses that have been delaying a much needed IT investment. With a new wave of funding for the Paycheck Protection Program, small businesses can invest up to 40% of the federal loan into cloud and software upgrades.
Congress extended covered operations expenditures under PPP-2 to apply to “any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.” This means the bucket of non-payroll expenses that PPP-2 applies to expanded to include IT expenses for business continuity, such as accounting software programs or monthly subscriptions to cloud software.
To realize the benefits of cloud and business spending provisions, companies must be eligible to receive the loans and follow all stipulations. If they act carefully, the loan could turn into a grant that doesn’t need to be paid back. Non-payroll expenses, including the new cloud and software allowances, can only make up 40% of the loan amount spent. The rest must be spent on employee payroll. View more on the SBA website here.
Limited Eligibility for Second Draw PPP Loans: The Second Draw of PPP loans are available to borrowers that previously received a PPP loan. Second Draw PPP loans are limited to businesses that (i) employ no more than 300 employees (down from 500) or meet an alternative size standard; (ii) have used the entire amount of their first PPP loan or will use such amounts, and (iii) had gross receipts during Q1, Q2 or Q3 2020 that were at least 25 percent less than the gross receipts from the same quarter in 2019 (applicants may use Q4 2020 if they apply after January 1, 2021). If the business was not in operation for a portion of 2019, then the comparable quarters may be different. The limitations put in place for Second Draw loan eligibility, as explained in this section, do not apply to first-time borrowers.
Use of PPP Funds: Congress expanded the types of expenses for which all PPP loans can be used, which applies to existing PPP loans (except in the event forgiveness has already been obtained) and new loans. In addition to payroll, rent, covered mortgage interest and utilities, the PPP now allows proceeds to be used for:
Eligibility for Section 501(c)(6) Not-for-Profit Organizations: For the first time, Section 501(c)(6) not-for-profit organizations will be eligible to apply for and receive PPP loans.
PPP Loans In Bankruptcy: In a significant change, borrowers in bankruptcy will be eligible to apply for PPP loans. These new loans will be treated in the borrowers bankruptcy case as administrative claims and to the extent not forgiven, must be paid in full in any Chapter 11 cases and are not subject to “cram down”.