PPP: New Allowable Uses

Chris Wittich

Part of the COVID 19 Relief Bill was changes to the allowable uses of PPP loan funds.  This is a retroactive change, so it applies to the original PPP loans from 2020 but it also applies to the PPP second draw loans which should be open starting in January 2021.  Some folks have already applied for the forgiveness on original PPP loans, and many of those original loans have already gone through their 24 week periods, but it could be helpful to understand these new allowable uses.  While there are these new uses, I will also point out that to get 100% forgiveness, there is still a requirement that 60% of the PPP be spent on payroll, these new expenses can just help you towards the other possible 40% on nonpayroll costs.

The new allowable uses are as follows:

  1. Covered operations expenditures
  2. Covered property damage costs
  3. Covered supplier costs
  4. Covered worker protection expenditures

I don’t think those are very self-explanatory so let’s dive into each one a bit more.

  1. Covered operations expenditures means payments for business software or cloud computing that facilities business operations or service delivery or tracking of business records. This would be for companies that were forced into remote working or virtual office situations and needed to purchase software to help them achieve that working from home or virtual office setup.
  2. Covered property damage costs they defined as relating to property damage and vandalism or lotting due to public disturbances that occurred in 2020 but were not covered by insurance. So if your business was damaged that may have prevented you from spending all the PPP money properly so they are going to allow your costs to fix the property damage to be an allowable PPP use, the key is that those costs can’t also be covered by insurance.
  3. Covered supplier costs is probably the most confusing of the bunch. They define it as expenditures made to a supplier of goods that are essential to the operations of the entity at the time and are made pursuant to a contract order or purchase order that was in effect at any time before the covered period OR in the case of perishable goods made during the covered period.  This is complicated but I see two distinctly different scenarios.  It seems they are going to allow the purchases of key items when there was a contract prior to receiving your PPP loan.  One example might be a copy store that buys 1,000 reams of paper prior to receiving the PPP loan, and then they promptly close down and aren’t really able those goods.  The PPP loan would allow them to pay that supplier for the goods even thought they might be closed and have minimal business.  The second scenario is going to be tailor made for restaurants because it allows for perishable goods purchase during the covered period.  The example there is the food that restaurants bought during the covered period is an allowable use of PPP funds.
  4. Covered worker protection expenditures could be either capital improvements to protect workers or the purchasing of masks or sanitation equipment. For businesses that were buying masks, or changed the facility to keep employees apart, or made the customer experience safer those kinds of costs are going to be the last new use of PPP funds.

I’m not sure how many situations will be altered by these new rules for the first PPP loan since it’s already been forgiven in many situations, but certainly being aware of these new uses can have a huge impact when looking at a PPP second draw, especially as it relates to claiming both the PPP second draw and if you qualify for the ERTC in 2020 or 2021.  Look for my other posts about the wildly complicated ERTC in 2020 and ERTC in 2021.  Contact any of Our Leadership Team for questions or more information.


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