Congress recently passed a $900 billion COVID-19 relief bill, the Consolidated Appropriations Act, 2021, which included funds for another round of the Paycheck Protection Program (PPP). The new round of PPP is similar to the first round, but the bill includes some important differences. These new PPP loans will be available through March 31, 2021.
Second Draw PPP Loans
Importantly, the bill provides for “Second Draw” PPP loans for businesses that received a loan under the original PPP plan. To be eligible for a second draw loan, a business must (1) employ no more than 300 employees; (2) have used or will use the entire amount of their first PPP loan; and (3) had a gross receipt reduction of at least 25% when comparing any quarter in 2020 to the same quarter in 2019. These requirements only apply to businesses that previously received a PPP loan, not to first-time borrowers.
For Second Draw PPP loans, the maximum loan amount available was reduced from $10 million to $2 million. However, first-time borrowers are still eligible for a maximum loan amount of $10 million. Businesses can calculate their maximum loan amount by multiplying the business’s average total monthly payroll in either (1) the one year period prior to the loan date or (2) 2019 calendar year, by 2.5x. Businesses with NAICS Code 72 (primarily restaurants and hotels) can use a 3.5x multiplier, but are still subject to the $2 million maximum loan amount.
While under the first PPP, businesses were required to use all loan funds within an 8-week period (then extended to 24 weeks) to qualify for loan forgiveness, the new program allows businesses to choose their own “covered period” between 8 and 24 weeks.
Expanded Eligibility for PPP Funds
The new PPP also expands the types of expenses PPP funds can be used for. Now, PPP loans can be used for:
- Payroll, including group life, disability, vision, and dental insurance expenses;
- Covered mortgage interest and utilities;
- Covered property damage costs – costs related to property damage as a result of vandalism or looting from public disturbances in 2020, not covered by insurance or other compensation;
- Covered supplier costs – expenditures to a supplier of goods that are essential to the operations of the business at the time the expenditure was made and is made under a contract, order, or purchase order;
- Covered operations expenditures – which includes payments for business software or cloud computing services to facilitate business operations, product or service delivery, and the processing, payment, or tracking of payroll expenses; and
- Covered worker protection expenditures – operating or capital expenses that allow a business to comply with guidance issued by the CDC, HHS, OSHA, or any state or local government. This includes PPE, expansion of indoor and outdoor space, installation of physical barriers, and ventilation r filtration systems.
Additional Changes Under New PPP
Under the new legislation, PPP loans will not be included as taxable income and businesses will be able to deduct expenses paid with the proceeds of a PPP loan that is forgiven. The bill also provided for a streamlined loan forgiveness process for PPP loans of $150,000 or less, consisting of a one-page certification.
The new program allow allows 501(c)(6) organizations, such as trade associations, chambers of commerce, and business leagues, to apply for and receive PPP loans, as long as: (1) they don’t receive more than 15% of their receipts from lobbying activities; (2) lobbying activities don’t make up more than 15% of the organization’s total activities; (3) the cost of lobbying activities did not exceed $1 million during the tax year ending February 15, 2020; and (4) the organization employs 300 or less employees. Additionally, businesses in bankruptcy will also be eligible to apply for and receive PPP loans. The loans will be treated as administrative claims in the bankruptcy case and to the extent not forgiven, but must paid in full in any Chapter 11 cases.
The Small Business Administration has not yet issued guidance and regulations on this new round of PPP. General Counsel, P.C. will continue to monitor any guidance provided. Additional clarifications, as well as hurdles, may arise as the new program is implemented. If your business is considering applying for a PPP loan under this new legislation, either as a first-time borrower or for a second draw loan, our attorneys can help make sure you’re complying with the most up to date information and help the process go as smoothly as possible.