Congress passed the Consolidated Appropriations Act (CAA) on December 27, 2020, adding to, and building on, the support provided by the original act passed in May. Part of this 5500-page bill is the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act which provides $284.5 billion of additional funding for the Paycheck Protection Program (PPP2) administered by the Small Business Administration (SBA). The SBA is expected to start accepting applications from all lenders by January 18, 2021, and all applications must be received by the SBA by March 31, 2021.
While similar in nature to the original PPP loan program, there are differences you need to be aware of in this new version. Here are the key things to know, as we see it.
First Time Borrowers
ELIGIBILITY
- Applicants must have been operational on February 15, 2020.
- You can apply if you fall into one of the following categories, but keep in mind that there are further restrictions each group must meet:
- Businesses with no more than 500 employees including partnerships, those with a NAICS Code that begins with 72 (food service and accommodations), sole proprietors, independent contractors and self-employed people.
- Nonprofit organizations including 501(c)(3)s, 501(c)(19)s, and 501(c)(6)s.
- Media including local newspapers, TV and radio stations (those with NAICS codes beginning with 511110 or 5151)
- Miscellaneous groups including housing cooperatives and destination marketing organizations.
LOAN AMOUNT
- The amount of the loan is calculated as 2.5 times average monthly payroll costs, up to $10 million, for calendar year 2019, 2020 or the 12- months prior to loan application.
- Self-employed borrowers may also borrow 2.5 times their average monthly net profit capped at $100,000.
- Farmers and ranchers who file Form 1040 should use line 9 from Schedule F rather than net income.
- Businesses that received an Economic Injury Disaster Loan (EIDL) by April 3, 2020 can refinance the amount they have yet to repay into their PPP2 loan if they want.
Second Time Borrowers
ELIGIBILITY
Some, but not all, of those that received a PPP loan in 2020 may apply for this new round of PPP funds if they meet the following criteria:
- Have 300 or fewer employees, and those with NAICS code 72 must have 300 or fewer employees per physical location.
- Experienced at least a 25% gross revenue reduction between comparable calendar quarters in 2019 and 2020. For borrowers in operation for all of 2019, you should compare each quarter to see if you experienced a 25% or greater decrease in revenue. (i.e., 1st quarter 2019 v. 2020, 2nd quarter 2019 v. 2020, etc.)
- Gross receipts are defined as all revenue but does not include net capital gains/losses.
- First PPP loans or EIDLs are excluded from gross receipts.
- Have used all previous PPP funds on eligible expenses prior to the 2nd loan distribution.
LOAN AMOUNT
- For businesses with employees, loans are calculated as 2.5 times average monthly payroll costs, up to $2 million based on 2019, 2020 or the 12-month period prior to when the loan is made. (Hotels and restaurants can borrow up to 3.5 times average monthly payroll.)
- Self-employed borrowers may also borrow 2.5 times their average monthly net profit capped at $100,000.
- Farmers and ranchers who file Form 1040 should use line 9 from Schedule F rather than net income.
- 2nd time borrowers cannot refinance an EIDL with this new PPP loan.
- 2nd time borrowers may use their original PPP lender or a new one.
NOTE: For loans greater than $150,000, borrowers must include documentation of revenue reduction when applying for the loan. For loans for $150,000 or less, revenue reduction documentation is not required at the time of the loan application but will be required when forgiveness is requested.
PPP2 Forgiveness
This new round of PPP loans has slightly different requirements for forgiveness and allows the borrower to pay for more expenses that before. While at least 60 percent must be allocated for payroll costs, the remaining 40% can be used to cover:
- Mortgage interest on debt obligations incurred before February 15, 2020
- Rent on leases dated before February 15, 2020
- Utility costs for services that began before February 15, 2020
- Covered operations expenditures*
- Covered property damage costs*
- Covered supplier costs*
- Covered worker protection expenditures*
*Indicates new categories of eligible costs for PPP forgiveness
Similar to the first round, borrowers can choose a covered period beginning on the date the loan proceeds are disbursed and ending any time between 8 weeks through 24 weeks after that date.
There is good news for those that received $150,000 or less in either loan period. The new act creates a simpler forgiveness application process. Though the forms are not yet available, the expectations are that these borrowers will only be required to:
- Submit a one-page form saying they complied with PPP requirements
- Report their loan amount, number of employees retained, and amount of loan spent on payroll
- Keep records of employment for 4 years and all other expenses for 3 years
- Show proof of revenue loss when applying for forgiveness of a 2nd PPP loan
Much like the first round, the caveats and requirements are detailed and confusing, so let us know if you have questions or need help with your PPP loan application or forgiveness paperwork. We will do our best to keep you informed on any changes as well.