Cloud Covered: Use Your PPP Loan for Software

TL;DR:

  • Because many businesses and nonprofit organizations had to make a fast pivot to remote operations last year, the new round of Payroll Protection Program (PPP) loans include not only payroll, rent, and utilities as “covered expenses” but also operational expenditures that include cloud software such as that used for accounting and finance, product or service delivery, and human resources.

  • Some businesses that already received PPP loans may be eligible for an additional loan of not more than $2 million. In addition, while the previous PPP loan wasn’t available to nonprofits other than 501(c)(3) organizations, PPP2 opens up the program to 501(c)(6) nonprofit corporations.

  • Correcting the IRS interpretation, covered expenses are tax-deductible, even when the loan is forgiven.

  • PPP loans of less than $150,000 are eligible for a simplified, one-page forgiveness application.

First, a recap:

I don’t need to tell you, the past ten months have been a series of head-whipping changes for every kind of human organization, from families, to businesses, to nonprofit organizations, to governments at every level. The COVID-19 pandemic has impacted just about every person on the planet in some way, and businesses as well, but not at all equally.

While some industries – particularly around travel and hospitality – saw their markets severely impacted, even obliterated, others have thrived in an accelerated era of online shopping, home upgrades, and virtual work and leisure experiences. And a vast swath of American businesses and nonprofits, as well as their people, are somewhere in between: holding on and holding out but not exactly thriving. And a lot of those companies need to rapidly transform their business technologies.

Back in April (yes, nine months ago) the federal government managed to rush out the CARES Act, a relief package that had lots of flaws but did the basic job of keeping the economy from a panic. One piece of that legislation was the Paycheck Protection Program (PPP), and many pixels have been spilled about what was wrong with that program and the subsequent “clarifications” from the IRS and the SBA. If you didn’t follow all the twists and turns of the PPP loan and forgiveness rules and interpretations, that’s okay. All you really missed is a case of vertigo. Despite its shortcomings, the PPP kept a lot of businesses and nonprofits from falling into insolvency.

Here comes PPP v2.0

At the end of December, a new bill was finally hashed out and signed into law, the Consolidated Appropriations Act, 2021, which put to rest many of the confusing or contradictory PPP rules that emerged from the CARES Act. The new act also expanded programs for economic stimulus, including PPP. 

While the primary focus of PPP2 is still to protect paychecks, the new law takes into account that this involves more than simply making payroll. To keep people employed in the new reality, investments need to be made in personal protective equipment (PPE) and safety retrofits, as well as in technology changes to accommodate remote work and touchless transactions. Thanks to a provision introduced by Rep. David Scott, D-GA, “covered expenses” under PPP2 include several other kinds of operational costs, including PPE for workers and software necessary for operations. 

The act specifically includes cloud applications used for accounting and finance, product or service delivery, human resources, and other essential business functions. Depending on other qualifying factors, those covered expenses might be part of a forgiven PPP loan or, if not forgiven, may be included in a 1 percent long-term loan. 

Organizations that didn’t previously apply for a PPP loan get to go for one now, if they have need. If an organization previously received a loan and spent it on the covered costs, they might qualify for a PPP2 loan, with some qualifications.* 

PPP2 also extends eligibility to most 501(c)(6) nonprofit organizations (business leagues, chambers of commerce, real estate boards, boards of trade and similar organizations) and nonprofit destination marketing organizations with 300 or fewer employees. 

What does this all mean for you? If your organization has been struggling with outdated, on-premise software for your accounting but your COVID budget has offered no room to upgrade, this is an opportunity to make that move. Here are some thoughts:

  • Make a move from on-premise financial software to cloud financials like Sage Intacct. If your organization qualifies, the subscription cost for your PPP covered period may be included in covered costs and submitted for forgiveness or, if not forgiven, repaid over five years at 1 percent interest.

  • If you’re already using cloud software for your core financials but still printing and signing checks at the office, PPP-covered expenses could include integrated Accounts Payable automation software that integrates with your GL and enables e-payments, remote check delivery, and electronic approval workflows.

These are some of the options that might be explored for upgrading your financials to the cloud in response to the pandemic, using PPP funds. But every case is different; we’re here to help you figure out what’s right for your organization!

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*Second-Time Borrower Eligibility: Previous PPP recipients may be eligible for another loan of up to $2 million provided they:

  • Have 300 or fewer employees;

  • Have used or will use the full amount of their first PPP loan; and

  • Can show a 25 percent gross revenue decline in Q1, Q2, or Q3 (applicants applying after January 1, 2021 may use Q4) compared with the same quarter in 2019.

Tom Achor