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Headlines and Strategies for Your Existing PPP Loan

By Jeffrey Paille, on January 6th, 2021

You’ve heard about the new COVID-19 relief bill passed by Congress before Christmas and signed by the President on December 27th. At almost 5,600 pages, there is a lot to unpack from this piece of legislation. This includes a 2nd round of PPP loan funding (we’ll refer to this as PPP2). But it also includes significant changes to the Original Paycheck Protection Program loan program (let’s call this OPPP).

The elements of this law that are specific to OPPP loans are grabbing headlines. Most of these headline-grabbing elements are good news. But the real opportunities are behind the headlines. An OPPP borrower willing to spend some time on further analysis might be able to derive even more benefits (or reduce risk, or both) from the elements of this legislation. Let’s acknowledge the three top headlines and then talk about the three biggest strategic opportunities.

Part I – The Headline-Grabbing Elements

Income Taxes

The new law settles the income tax question – OPPP loan forgiveness is not taxable income and the expenses claimed to support forgiveness are deductible for federal income tax purposes. Of course, there are details, but this overriding answer is what everyone was hoping for. Please see the separate article on specific income tax considerations here.

Streamlined Forgiveness for Loans up to $150,000

The new law establishes a streamlined forgiveness process for loans up to $150,000. The law calls for the application form to be no more than one page. Borrowers will need to certify that they have complied with the OPPP terms and conditions, provide some summary information on employment and payroll, and agree to retain payroll records supporting the use of the funds for four years and records supporting non-payroll uses for three years. In addition, the SBA retains the right to audit these loans and forgiveness applications and may change the forgiveness decision if appropriate based on a finding of fraud as a result of such an audit.

The EIDL Advance Deduction from OPPP Forgiveness

Many employers who took an OPPP loan also applied for and received an EIDL advance from the SBA of up to $10,000. Previously, OPPP forgiveness was to be reduced by the amount of this advance. Under this new law, this reduction is not required.

The SBA and lenders have not modified forgiveness application forms for this change. Also, the law does allow OPPP borrowers who have already applied for and received a forgiveness decision to receive the benefit of this provision, even if the $10,000 has already been fully or partially repaid as an “unforgiven” balance on the OPPP loan. The process for that is not known at this time.

Part II – Strategic Opportunities Related to OPPP Loans

If you haven’t yet applied for your OPPP forgiveness, you have an opportunity to take advantage of new elements of flexibility that the new relief bill includes. Even if you did receive OPPP forgiveness already, you likely can benefit from some of the new law’s provisions specific to OPPP. Here are the top items:

New Allowed Forgivable Expenditures

The CARES Act allowed for four types of expenditures to be claimable for OPPP forgiveness: payroll (including some benefits), rent, utilities, and interest on mortgage obligations. The new law creates additional allowed uses of OPPP loan proceeds that can be included for forgiveness, as follows:

1. Covered operations expenditures, defined as “a payment for 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.”

2. Covered property damage costs, defined as “a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.”

3. Covered supplier costs defined as “an expenditure made by an entity to a supplier of goods for the supply of goods that (a) are essential to the operations of the entity at the time the expenditure is made and (b) is made pursuant to a contract, order, or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan, or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan.”

4. Covered worker protection expenditures defined as “an operating or capital expenditure to facilitate the adaptation of the business activities of an entity to comply with the requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established by a State or local government, during the period beginning March 1, 2020, and ending on the date in which COVID-19 National Emergency expires.” This may include:

a. The purchase, maintenance, or renovation of assets that create or expand:

  • A drive-through window facility.
  • An indoor, outdoor, or combined air or air pressure ventilation or filtration system.
  • A physical barrier such as a sneeze guard.
  • An expansion of additional indoor, outdoor, or combined business space.
  • An onsite or offsite health screening capability.
  • Other assets relating to the requirements described above.

b. The purchase of:

  • Covered materials described in section 329.103(a) of title 44, Code of Federal Regulations, or any successor regulation (this covers items identified as priority production items under the Defense Production Act).
  • Particulate filtering face piece respirators approved by the National Institute for Occupational Safety and Health.
  • Other types of PPE as approved by the administrator.

c. This may NOT include residential real property or intangible property.

In terms of timing, these provisions are effective as if they were included in the CARES Act on March 27, 2020. This means that those who have not applied for OPPP forgiveness can claim these costs as part of their forgiveness application. Keep in mind that the forgiveness application forms themselves do not currently incorporate these new items, and we do not know when the SBA or lenders will incorporate these changes. Also keep in mind that the requirement that at least 60% of forgivable expenditures be for payroll has not changed.

Strategy Consideration: With these additional new expenditure categories, it will be easier to accumulate non-payroll expenditures to make-up 40% of the OPPP loan forgiveness balance, freeing-up some payroll dollars to be available for use in consideration of other funding opportunities.

Employee Retention Credit

The CARES Act established OPPP and the Employee Retention Credit (ERC) as mutually exclusive funding opportunities – if you had an OPPP loan you could not take the ERC and vice versa. This bill reverses that position, now allowing an employer to take advantage of both of these programs. Many OPPP borrowers are not familiar with the ERC because until now, it was not available to them. It’s time to get familiar with ERC.

The ERC is a credit available against payroll tax obligations. The credit is allowed for 50% of eligible wages up to $10,000 (a maximum credit of $5,000) per employee for the period March 12, 2020 through December 31, 2020. For calendar 2021, the credit increases to 70% of eligible wages up to $10,000 (maximum credit of $7,000) per employee for each quarter of 2021 through June 30, 2021.

The ERC is available for wages paid to all employees if the employer meets the following criteria:

1. Averaged 100 or fewer employees during 2019 if taking the credit during 2020 (this threshold increases to 500 if taking the credit in the first or second quarter of 2021), and

2. Experienced a negative impact from the COVID-19 disruption, defined as:

a. The operation of the trade or business was fully or partially suspended during the calendar quarter due to orders from an appropriate government authority limiting commerce, travel, or group meetings due to the coronavirus, or

b. A significant decline in gross receipts when comparing the 2020 or 2021 quarter to the same quarter from 2019. Significant decline is defined in the new law as a decline of 50% or more if taking the credit in 2020 (this threshold decreases to 20% if taking the credit in the first or second quarter of 2021).

An employer that does not meet these criteria can still take ERC, but only for employees who were kept on the payroll but were not working (i.e. not providing services).

Please see a separate article focused on the employee retention credit on our website here for a more detailed discussion of ERC.

One critical factor regarding the interaction of the ERC with OPPP is that wages claimed as part of OPPP forgiveness cannot also be used to claim the ERC. This creates some interesting strategy opportunities for those who have not yet applied for forgiveness.

Strategy Consideration: Many OPPP borrowers are focusing on allocating payroll dollars as support for OPPP forgiveness. More carefully utilizing non-payroll costs as support for OPPP forgiveness could “free up” payroll dollars for which the ERC could now be claimed as a benefit incremental to OPPP.

Clarification of Forgiveness Period Flexibility

The new law makes it clear that an OPPP borrower can select any forgiveness period of at least 8 and not more than 24 weeks. This clarification, along with the new expenditure categories (above), increase the flexibility to manage OPPP forgiveness and the ERC for maximum cumulative benefit. Rather than including the full 24 weeks of payroll in the OPPP forgiveness application, an employer may be able to achieve full forgiveness in fewer weeks, leaving the additional weeks of payroll costs available to claim the ERC.

Strategy Consideration: OPPP borrowers should consider whether shortening their forgiveness period can result in full OPPP forgiveness and maximize ERC value in 2020. For OPPP borrowers whose 24-week period would extend into 2021, shortening the forgiveness period so it ends on or before December 31, 2020, allows for full use of the ERC in 2021.

Part III – Key Operational Considerations

To take advantage of these opportunities, an organization must make an effort to analyze its data and look at different scenarios, with the goal of maximizing the overall benefit. Here are some additional elements to consider in that analysis:

The “Double-Dip”

We mentioned above how payroll dollars claimed as part of OPPP forgiveness cannot also be claimed for the ERC. This idea of “double-dipping,” that is, claiming a single dollar of expenditure as support for multiple dollars of government aid, also applies to other COVID-19 relief funding streams. For example, many health care providers received Provider Relief Funds allocated from the CARES Act. Other organizations received FEMA disaster grants and relief funding under numerous other provisions of the CARES Act. An organization is prohibited from “double dipping” from these various funding sources.

It’s also possible that funding from State or even private sources includes provisions related to double dipping. The risk of double-dipping to maximizing all available funding sources is that you expose your organization to the possibility that one or more of the funding authorities will demand the return of funds because you double dipped. Careful consideration of double dipping to both maximize benefits and reduce risk is warranted given the various funding source requirements.

Benefit Maximization Strategies

We have observed many OPPP borrowers opting for the “easiest” route by using all their payroll during the covered period when applying for debt forgiveness, thereby avoiding the need to track and analyze non-payroll expenses as part of the forgiveness application.

We caution borrowers against this approach. The new opportunity to apply for both a PPP loan and the employee retention credit may guide businesses to apply payroll to get to the minimum 60% of forgivable expenses expended on payroll, so that remaining payroll might be utilized to generate employee retention credits. Taking it one step further for HHS funding or other federal COVID-19 relief funding streams, employers may also have an opportunity to carve out payroll for allowable uses supporting the use and retention of these other funding sources. With the expanded list of allowable expenditures for OPPP, it is easier now to cover up to 40% of the OPPP balance with non-payroll costs.


It’s unlikely that anyone will be excited to revisit their OPPP calculations again; many have been working on this for 9 months now, and we’ve been through previous rounds of changes. At some point, we just want to be done with this, right? The truth is that now may be the most important time to focus on the OPPP calculation. These new elements of flexibility could be worth significant financial benefit if strategized and executed correctly. Fight through the fatigue and it may be well worth your while.

Getting Help

Bonadio’s CARES Consulting Team is on top of these new elements. We’re happy to talk through the implications of the changes and how they apply to your specific situation. Reach out today.

Part IV – Simplified Example

This example is presented to demonstrate the possibilities – as you know, these things are complicated. Obviously, this example simplifies the situation – it is designed to express the potential benefits of revisiting strategy on your OPPP loan in light of the changes brought on by the new law.

Example facts:

  • OPPP loan for $720,000 originated April 20, 2020.
  • Assume no FTE reduction.
  • Average $30,000 per week of eligible forgivable payroll costs during the 24 week covered period (i.e. $720,000 forgivable payroll costs).
  • Incur $120,000 of rent, utilities, and mortgage interest (i.e. eligible non-payroll costs) during the forgiveness period.
  • Incur $200,000 of covered operations expenditures, property damage costs, supplier costs, and covered worker protection expenditures (the new allowable forgiveness expenditure categories) during the forgiveness period.
  • Fewer than 100 FTEs (as defined by ERC rules) during 2019.
The Bonadio Group

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.

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