Paycheck Protection Program (PPP)

As part of the new stimulus bill, titled the Consolidated Appropriations Act, 2021, the SBA has announced that it will re-open the Paycheck Protection Program (PPP). The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act provided many of the clarifications to the program.

Community financial institutions will be able to make First Draw PPP loans (for new PPP borrowers). Those same institutions will be able to make Second Draw PPP loans available. The purpose of this process is to make the funds more accessible to hardest-hit communities. After Wednesday, the PPP program will open to all participating lenders.

This round of the PPP offers a total of $284 billion toward small businesses, with the round concluding on March 31, 2021.

Key Changes for This Round of PPP Loans

Maximum Loan Amount of $2 million

·    Most borrowers may receive a loan amount up to 2.5 times their average monthly payroll costs in 2019, or the 12 months before the loan application

·    Borrowers in the accommodations and food services sectors (NACIS industry code of 72) can receive a loan amount of 3.5 times their average monthly payroll costs in 2019 or the12 months before the loan application

Second Draw PPP Loans

Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan. A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

·    Was in business before February 15, 2020

·    Has fewer than 300 employees

·    Used, or will use, prior PPP loan if previously received

·    Can demonstrate at least 25% revenue decrease in gross receipts* during any quarter of 2020 (compared to the same quarter in 2019)

Expanded Use of Funds

Businesses will still need to spend at least 60% on payroll expenses, which the program specifies includes employer-provided group insurance. The 60-40 cost allocation between payroll (salary, commissions, bonuses, wages, group health/dental/vision insurance, group retirement) and non-payroll costs will continue to apply. For the self-employed, salary only applies. For the remaining 40% – in addition to mortgage/rent and utilities – funds can also be spent on:

·    Operations expenditures (i.e. software and cloud computing needs)

·    Property damage costs due to public disturbance

·    Supplier costs for supplies ordered before the loan was received, or perishable goods ordered before or during the loan

·    PPE equipment for employees purchased to comply with guidance from the Department of Health & Human Services, the Occupational Safety and Health Administration (OSHA), the Centers for Disease Control, or a state or local government

Additional Changes

·    Borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;

·    501(c)(6)s – housing cooperatives, destination marketing organizations, etc. – are now eligible to apply for PPP funds

·    The PPP provides greater flexibility for seasonal employees;

·    Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount

Additional Information

·    Read the SBA’s full Interim Final Ruling on Second Draw PPP Loans

·    Read the SBA’s Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act

·    PPP Guidance from SBA Administrator Carranza on Accessing Capital for Minority, Underserved, Veteran, and Women-owned Business Concerns

Preparing (for First Draw PPP Loans)

If you did not receive a PPP loan in the first round or do not have a lending relationship established, we’d recommend ensuring that your desired bank plans to work with the PPP program (not all will). Then, ask your desired lender what you may need to complete. This will likely include gathering documents such as: operating agreement/bylaws, articles of incorporation, verification of tax id, copy of drivers’ licenses for signators, etc. to establish your business in the system. Some banks may also require businesses to have a business account.

Gross receipts are defined in the Interim Final Ruling as “all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.” Read the full ruling for additional exclusions.

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