The COVID-19 pandemic continues to hold a firm grip on the marketplace, and many businesses are beginning to feel the COVID fatigue. As the complications from the pandemic continue well into 2021 for both contractors and their clients, construction firms will want to consider all the available funding options to help keep businesses operational during this time.
Thanks to the Consolidated Appropriations Act passed at the end of 2020, several government funding sources have been expanded, opening the doors to more inclusive funding options. For contractors, this includes changes to the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), and employee retention tax credits (ERTC). Here are the key provisions of each.
Updates were made to first-draw PPP loans
Considerable updates were made to first-draw PPP loans in the Act. Here’s what contractors should be mindful of:
- Self-employed individuals, general partners, or owner-employees with at least a 5% stake are limited in forgiveness on their compensation. You can use 2.5 months’ worth of compensation during the year used to calculate your PPP loan amount with a cap at $20,833 per individual across all businesses.
- The Act expanded eligible costs for forgiveness which now include:
- Payroll – salary; wages; vacation; paid parental, family, medical, and sick leave; health coverage benefits.
- Mortgage interest (for mortgages signed before Feb. 15, 2020).
- Rent (for leases signed before Feb. 15, 2020).
- Utilities (in service before Feb. 15, 2020).
- COVID-related worker protection and facility modifications.
- Property damage costs related to public disturbances.
- Supplier expenditures essential to operations.
- Operating expenditures for software/cloud computing services essential for running the operation.
- The covered period begins with the date of loan disbursement and ends either 8 or 24 weeks from that date. Alternative covered payroll periods are no longer available.
- Expenses related to PPP loans are now tax-deductible.
- Qualifying payroll documentation may include payroll records; payroll tax filings; Form 1099-MISC; Form 1040, Schedule C or Schedule F; sole proprietorship income and expenses; bank records.
- The maximum loan amount is $10 million.
- First-draw loans of $150,000 or less can use a simplified forgiveness application.
EIDL advances no longer count against your loan forgiveness. This can help increase your forgiveness amount.
ERTCs can now be claimed with a PPP loan. This wasn’t previously allowed but opens the doors to more funding options for your construction business. Significant changes were made for periods after Jan. 1, 2021. Businesses with fully or partially suspended operations or businesses with at least a 20% gross receipt drop during certain time periods are eligible. Up to 70% of wages qualify for the credit including the cost to provide health benefits with a maximum of $14,000 available for two quarters. Construction companies will want to be mindful of claiming this credit with a PPP loan as there can be no crossover in wages funded by either method.
New provisions for second-draw PPP loans
If your construction entity claimed a first-draw PPP loan and is considering a second-draw PPP loan, be mindful of the updated eligibility requirements. Eligible borrowers must:
- Have 300 or fewer employees
- Have used or will use the full amount of their first PPP loan on or before expected date of second loan disbursement, and the full amount must have been used on eligible expenses.
- Have had at least 25% reduction in revenue for all or part of 2020 compared to the same time in 2019. Gross receipts can be used for calculation, or annual tax forms can be used for those in operation for all four quarters of 2020.
- The gross receipts used for calculation were defined to include all revenue regardless of form in which it was received or accrued or the source.
- First draw PPP loans should not be included in 2020 gross receipts.
Contact us for assistance with navigating any or all of these funding sources for your construction firm.