Feb 16 2021

How Small Businesses Can Buy Technology with Government Help

Paycheck Protection Program funds and an annual tax deduction allow firms to buy software, hardware and cloud services.

Small businesses can now apply for a second round of Paycheck Protection Program loans — and this time, they can use a portion of the stimulus funds to purchase technology.

The new $284 billion aid package passed by lawmakers in late December is targeted at small businesses hit hard by the pandemic. The new package not only provides more PPP funds but also expands the list of expenses that are eligible for loan forgiveness.

“I’m encouraging businesses who have had a downturn in revenue to apply,” says Elizabeth Milito, senior executive counsel for the National Federation of Independent Business (NFIB), a nonprofit small business association. “The great thing about PPP is if you spend the money right — 60 percent on payroll and 40 percent on these other qualifying nonpayroll costs — the loan turns into a grant, and it’s 100 percent forgiven.”

Like the first round of PPP loans, small businesses can use the second draw of loans for payroll costs including benefits, as well as mortgage interest, rent and utilities. The new round, however, also allows businesses to use the money for COVID-19 worker safety provisions, uninsured property damage costs from vandalism or looting in 2020, certain supplier costs and operational expenses, which include business software and cloud services.

That’s a boon to businesses that need to subscribe to cloud services or buy software — from videoconferencing tech to IT security solutions — to allow employees to work remotely. More specifically, the law says PPP funds can be used for any software or cloud service that facilitates business operations, product or service delivery, as well as payroll, human resources, accounting and inventory software.

“So many small businesses have had to send their employees home to work. Now is a good time to potentially look at upgrading your software or cloud computing software investments. That would be covered in the expenditures,” Milito says.

Get Federal Money to Keep Workers Safe

The second PPP round also covers worker safety expenses, including personal protective equipment, hand sanitizer and physical barriers, such as transparent shields or panels between desks, she says.

The law also specifies that PPP funds can be used for expanding indoor or outdoor spaces, installing air ventilation or filtration systems and adding onsite or offsite health screening capabilities. On the technology front, that includes temperature screening kiosks, Milito says.

Other technologies that improve worker safety could potentially be covered under PPP, such as digital signage that reinforces safety measures. Right now, however, it’s a gray area, she says.

MORE FROM BIZTECH: The top security challenges for small businesses in 2021.

Milito recommends that small businesses check with their lenders or with the Small Business Administration to see what technology and other expenses are allowed. In the near future, the SBA is likely to provide more guidance that spells out more precisely what are allowable expenses, she adds.

“It’s worth investigating if it’s something your business invested in and it’s about worker protection,” she says.  

How the Second PPP Loan Works

Businesses can apply for a second PPP loan between Jan. 13 and March 31, 2021. Qualified companies can borrow up to $2 million, but most small businesses that are NFIB members will get $150,000 or less, Milito says.

Most businesses can borrow up to 2.5 times their average monthly payroll costs in 2019 or 2020. Businesses in the accommodation and food services sector can borrow 3.5 times their average monthly payroll costs in 2019 or 2020, according to the SBA.

To be eligible for the second draw, a business must have received a first draw PPP loan and used or plan to use the full amount for authorized purposes, have no more than 300 employees and demonstrate a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020, the SBA says.

For the loan to be forgiven and turned into a grant, businesses must use at least 60 percent of the funds for payroll costs.

Overall, the second PPP loan program is vital for small businesses that are trying to survive the pandemic, says Laura L. Buckley, a partner at law firm Higgs Fletcher & Mack in San Diego, where she specializes in taxation. The first PPP loans helped small businesses and nonprofits continue operations and retain employees, but it wasn’t enough, she says.  

“As businesses have continued to face statewide shutdowns in 2021, such as in California, income continued to plummet for many businesses,” Buckley says. “The second PPP loans will hopefully help these businesses continue to operate and allow many Americans to keep their jobs until the economy improves.”

Deduct Tech Expenses with Section 179

Businesses can also get a substantial tax deduction for their technology purchases every year.

While it’s not money from the government like the PPP loans, the Section 179 deduction of the tax code and bonus depreciation allows companies of all sizes to write off technology and equipment spending in one year rather than using the normal depreciation schedule, which for hardware is typically five years. That, in turn, can lower their taxable income for the year.

The amount of the Section 179 deduction for the 2020 tax year is $1.04 million and increases to $1.05 million in 2021. However, Section 179 limits how much companies can spend on equipment to qualify for the full deduction. In 2021, the spending limit is $2.62 million, up from $2.59 million in 2020.

Companies can also apply a bonus depreciation of 100 percent for the 2020 and 2021 tax years, which increases the amount of technology and other equipment that companies can deduct annually. Technology that qualifies for the tax deduction includes servers, computers, networking equipment and off-the-shelf software.

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