On December 27, 2020, President Donald Trump signed into law the Consolidated Appropriations Act (the Act), a $900 billion legislative package that, among other things, renews the Paycheck Protection Program (PPP) that was established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Act allocates $284.45 billion for PPP loans to eligible new borrowers and qualifying borrowers that already received a loan under the first round of PPP funding.
Below is a summary of the key components of the new PPP program, including some material changes from the initial program and guidelines for second-time borrowers.
- Deductibility of Expenses: Borrowers that received PPP loans under the original program or receive loans under the renewed program may take tax deductions for expenses paid for with PPP loan proceeds.
- Eligibility: First-time PPP borrowers will be subject to the PPP eligibility rules established under the CARES Act. Publicly traded companies, businesses that were not in operation on February 15, 2020, and entities that receive shuttered venue operator grants are not eligible to receive PPP loans under rules provided for in the Act.
- Second Draw Loans: Existing PPP borrowers may apply for a second loan, but they must meet stricter eligibility criteria, and their loan proceeds will be subject to a $2 million cap. The restrictions on second-time PPP borrowers are as follows:
- Second-time PPP borrowers must (i) have fewer than 300 employees and (ii) have experienced a reduction of at least 25% in gross receipts during a quarter of 2020 as compared with the same quarter in 2019.
- Businesses engaged in political or lobbying activities are ineligible for a second draw. Businesses owned 20% or more, directly or indirectly, by an entity created or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong or that has “significant operations” in those jurisdictions, and businesses that have a resident of the People’s Republic of China as a board member are also ineligible to participate in the new round of PPP funding.
- The maximum loan amount available to a second-time borrower is $2 million (down from the $10 million cap on loans during the initial program). Each borrower is eligible to receive an amount up to 2½ times its average total monthly payroll during (i) the one-year period prior to the date the loan is made or (ii) 2019. An eligible business in the accommodations and food services sector can receive up to 3½ times its average total monthly payroll.
- Expansion of Eligible Expenses: The Act expands the list of expenses eligible for forgiveness to include payments for business software or cloud computing services that facilitate business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses. Borrowers may also use PPP funds to pay for (i) costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation; (ii) expenditures made to suppliers for certain goods in connection with a borrower’s business; and (iii) costs incurred in connection with compliance with COVID-19 related health and safety guidelines, including sanitation standards, social distancing requirements, and other worker or customer safety measures related to COVID-19.
- Covered Period: Borrowers can choose the length of the covered period over which they must use the proceeds of their PPP loan. The covered period can be as short as eight weeks or as long as 24 weeks.
- Affiliation Rules: The Small Business Administration (SBA) affiliation rules applicable to loans under the original program will continue to apply to first- and second-draw PPP loans.
- Simplified Forgiveness Process: Borrowers who receive loans of $150,000 or less will be able to apply for loan forgiveness using a simplified one-page loan application, which will require the borrower to provide, (i) the number of employees the borrower was able to retain because of the covered loan, (ii) the estimated amount of the loan proceeds spent on payroll, and (iii) the total loan amount. Borrowers must also certify that they complied with all program requirements and retain applicable records proving compliance.
- Repeal of EIDL Deduction: The Act repeals a requirement under the original program that required borrowers to deduct the proceeds of their Economic Injury Disaster Loan advance from their loan forgiveness amount.
- Increase in PPP Loan Amounts: Borrowers during the first round of PPP funding who would have been eligible to receive an increased loan amount under the new rules established under the Act will be eligible to reapply for the difference.
- No Enforcement Action Against Lenders: The Act provides that a lender will not be subject to any penalties relating to loan origination or forgiveness of a PPP loan if the lender acts in good faith in reliance on any certification or documentation submitted by the PPP applicant and all other relevant laws applicable to the lender are satisfied with respect to the PPP loan.
- Timing of Loan Program: The SBA is required to issue regulations with respect to the new program within 10 days of the enactment of the legislation. Borrowers have until March 31, 2021, to apply for a PPP loan.
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