The global COVID-19 pandemic has interrupted businesses of every size and industry. Some companies have had to adapt their business models and services to meet new demand or restrictions, while others have had to navigate layoffs and cutbacks. What we all have in common is that we’ve been forced to acclimate to a remote workforce and accept the reality of digital commerce.
Small businesses have been one of the most hard-hit victims of this pandemic, and many were not able to turn a profit in 2020. The most affected sectors were hospitality, food services, arts, entertainment, and recreation—which employs 20 million workers and earns 12 percent of US business revenue (McKinsey). To promote access to capital for financially struggling small business owners across the country, the U.S. Small Business Administration (SBA) and Treasury Department created the Paycheck Protection Program (PPP), which was recently re-opened in January 2021. The government has updated the program with new guidance and inclusions to enhance its effectiveness and accessibility for small businesses most impacted by COVID-19.
What we are particularly excited about these PPP loan inclusions is that they include some of the most important tools to battling this recession: cloud software and services. The second round of PPP loans provides the funding to invest in technology and systems in the cloud, including cloud hosting, ERP, and business continuity services like data backups and disaster recovery. Although new stipulations continue to develop each day, the preliminary guidelines state, “any software, cloud computing, and other human resources and accounting needs.”
As self-proclaimed technology nuts, we can’t tell you how happy this makes us. We know the value of cloud infrastructure and technology, and we want to help other U.S. businesses grow by continuing to invest in and adapt their technology and systems to the cloud. In this blog post, we have answered some of the biggest questions about the PPP loan, including:
- What is the second draw PPP loan?
- Who qualifies for the second draw PPP loan?
- How can I apply for the second draw PPP loan?
- What cloud software and services are included?
We have also included more details on restrictions and deadlines in our comprehensive COVID PPP Loans Round 2: Cloud Technology Coverage FAQ.
Please note that the following material has been prepared for informational purposes only. It is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors regarding the use of your COVID PPP loans.
What is the Second Draw PPP Loan?
An extra $284.45 billion dollars has been allocated to small businesses in the United States to use for COVID-19 PPP second draw loans. These are government loans provided to companies at a fixed 1% non-compounding 5-year rate. The best part about the loan program is that if businesses use the loan for certain business expenses, they may be partially or completely forgiven. It is also tax-deductible.
Round 2 PPP loans cover the same items as the first round of PPP Loans, including payroll costs, interest on primary mortgages (if in place before Feb. 2020), and rent and utilities (if in place before Feb. 2020) but has been extended to cover:
- Select operational expenses (i.e., cloud-based hosting and computer software expenses)
- Covered property damage costs (i.e., vandalism),
- Covered supplier costs (i.e., costs for essential services)
- Covered worker protection (i.e., PPP and related)
Please note that there is a 60/40 rule in place requiring that at least 60% of the loan be spent on maintaining your workforce through payroll expenses. The other 40% can go to operating expenses, such as cloud technology and services. Your forgiveness will be primarily based on your payroll expenses and other standard operating expenses, but if your costs do not equal the loan amount, you will not have that money forgiven.
Who Qualifies for the Second Draw PPP Loan?
To qualify for the second draw PPP loan, your small business must fit the following criteria:
- 300 or fewer employees.
- If you participated in the COVID PPP last year, you must have used the full amount of the first round of funding. Participation in the last round of loans is not required for qualification.
- You can demonstrate at least a 25% or greater reduction in gross receipts in the first, second, or third quarter of 2020 compared to the same period in 2019
How Can I Apply for the Second Draw PPP Loan?
For any small business that benefited from round one of the PPP, you will need to apply using Form 2483-SD (Second Draw). If you apply with the same lender that you used for the first round, you can use the same documentation used for that application. For small businesses applying for the first time, you need to use Form 2483 (PPP Borrower Application Form).
The SBA announced that the deadline to apply will be March 31st, 2021.
What Specific Cloud Software and Services are Included?
All businesses have had to adjust to a world revolved around the internet in order to survive. According to a Flexera survey, U.S. businesses were spending over 23% of their cloud budgets only two months into the pandemic. In order to sustain remote workforce operations, small businesses need to invest in migrating their older systems and infrastructure to cloud-based software and cloud-hosted environments.
The SBA and the Treasury Department recognized the need for cloud technology and have included it in round two PPP loans for small businesses. According to the latest guidelines, it appears that business applications and ERP software built for accounting, inventory management, and related functions are included, as well as cloud hosting and business continuity offerings. Here are some of Tigunia’s services that would be covered under the second round of PPP loans:
- Cloud Managed Services – Office 365 installation and integration, Microsoft Azure deployment and customization
- Cloud Hosting – Private, public, and hybrid hosting and cloud storage
- Cloud Security – Data backup, disaster recovery, and business continuity solutions
- Cloud SaaS Business Applications – Microsoft Dynamics 365
There is also an additional forgiveness area included for covered supplier costs. Although more tax advice is necessary, the definition from the SBA states, “expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to operations at the time at which the expenditure was made.” This means that if your ERP system, warehouse management system, shipping system, etc., is integral to your business, and a contract for services is in place before the loan application is submitted, those expenses would be able to be included in the forgiveness calculation.
Why Invest in Cloud Technology and Services Using the COVID PPP Loan?
The U.S. government has taken a step in the right direction for small businesses struggling to get a leg-up in the economic recovery game. If you are a small business that is eligible for the second round of PPP loans, there are two major reasons why you should apply:
- Take advantage of the loan rate.
If you are in need of a new cloud ERP system or upgrade, the 1% flat loan rate for 5 years is the best deal you could possibly ask for.
- You may not have to pay it back at all.
There is a high probability that this loan will be forgiven completely and deducted.
So, what are you waiting for? Take advantage of the expanded PPP coverage by applying before the March 31st, 2021 deadline. From there, feel free to contact our team to learn more about what cloud software and services will best fit your small business and future growth plans. We offer the most rounded set of technology expertise available to meet your monetary and performance objectives. No matter your requirements, Tigunia has a service offering that fits your needs and your budgets.