PPP Loans Reopened to Aid Small Businesses: Changes to Application, Terms, and Covered Expenses

Hannah E. Mudd

By Hannah E. Mudd

ppp loanThe Paycheck Protection Program (PPP) has reopened to aid small businesses. The “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act” (“Economic Aid Act”) makes several changes to the prior PPP rules that affect all PPP loans and enacts new rules for any new and additional PPP loan funding provided under the Economic Aid Act.

Through the Economic Aid Act, $284.45 billon was authorized for first-draw and second-draw PPP loans with several set-asides for underserved communities. Applications for these extended PPP loans are available until March 31, 2021. In addition to the information below, for further details about the PPP created by the CARES Act and rules that remain in effect, see our prior article here.

First-Draw PPP Loans Under the Economic Aid Act

Those seeking a PPP loan for the first time who thought they missed the deadline under the CARES Act  have not lost their opportunity. Thanks to the Economic Aid Act, borrowers who did not receive a PPP loan (under the CARES Act) and meet the requirements may still apply for a PPP loan.

Eligible Entities

  1. Those with 500 or fewer employees that previously would have been eligible for a PPP loan are still eligible if they were operating as of February 15, 2020 and paid salaries and payroll taxes for employees or independent contractors.
  2. Entities with more than 500 employees in certain entities that meet SBA alternative size standards are eligible.
  3. The following entities are now expressly eligible for PPP loans under the Economic Aid Act as well:

    • News organizations with fewer than 500 employees at any location.
    • Housing cooperatives with fewer than 300 employees.
    • 501(c)(6) organizations and destination marketing organizations with fewer than 300 employees (if lobby activities comprise no more than 15% of receipts and activities).

Loan Details

  1. The max loan amount will be the lesser of 2.5 times the average monthly payroll for either the 2019 or 2020 calendar year (excluding employee compensation in excess of $100,000) or $10 million. Borrowers can elect either the 2019 or 2020 calendar year for calculating payroll costs to determine the max loan amount.
    • Businesses that are part of a single corporate group will not receive more than $20 million of PPP loans in aggregate.
  2. Borrowers must certify that the uncertain economic conditions make the loan request necessary to support their ongoing operations.
  3. First-draw PPP loans will have an interest rate of 1% and a maturity of five years.
  4. Payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the forgiveness amount to the lender.
  5. If a borrower does not apply for forgiveness, payments will be deferred for 10 months after the end of the covered period for loan forgiveness.
  6. No collateral or personal guarantees are required and neither the government nor lenders will charge fees.

The application for a first-draw PPP loan can be found here.

PPP Loan Increases

In addition to those applying for a PPP loan for the first time, a PPP first-draw loan under the Economic Aid Act may be available to certain current borrowers with a PPP loan issued prior to December 27, 2020 i Such prior borrowers must not have yet received forgiveness of their current PPP loan and either:

  1. Returned all or part of a PPP loan for which they were approved, or
  2. Did not accept the full amount of a PPP loan.

Borrowers may request the loan increase even if the initial loan amount has been fully disbursed or the lender of the initial loan has already submitted an SBA Form 1502 report for the loan. If a borrower returned the full amount of a PPP loan, the maximum amount of the first-draw loan will be the amount the borrower is eligible to receive under the current PPP loan rules. For a borrower who returned part of a PPP loan, the maximum loan amount will be the difference between the amount of the loan retained and the amount previously approved. A borrower who did not accept the full approved amount of a PPP loan may request an increase in the amount of the PPP loan up to the amount previously approved.

Additionally, a partnership borrower that did not include partner compensation as a payroll cost in determining its PPP loan amount, may request an increase in its loan for partner compensation, even if the loan has been disbursed. This increase request should be made to the original lender, which will submit the request through the SBA’s E-Tran Servicing site.

It is not clear whether a borrower could obtain a loan increase and a second-draw loan.

Second-Draw PPP Loans

Existing PPP borrowers (recipients under the CARES Act) may be eligible for a second-draw PPP loan under the Economic Aid Act subject to the applicable rules.

Eligible Entities

  1. Have used all their existing PPP loans no later than the date of disbursement of their second-draw loan;
  2. Have 300 or fewer employees; and
  3. Demonstrate a 25% or more reduction of gross revenues in any quarter of 2020 compared to that same quarter in 2019.
  4. The following are now expressly eligible for PPP loans under the Economic Aid Act:
    • News organizations with fewer than 500 employees at any location.
    • Housing cooperatives with fewer than 300 employees.
    • 501(c)(6) organizations and destination marketing organizations with fewer than 300 employees (if lobby activities comprise no more than 15% of receipts and activities).

Loan Details

  1. The maximum loan amount will be the lesser of 2.5 times the average monthly payroll for either a 1-year period before the date the loan is made. Borrowers can elect either the 2019 calendar year or the 12-month period prior to when the loan was made for calculating a borrower’s payroll costs to determine the max loan amount.
    • PPP borrowers who have a NAICS code of 72 (i.e., restaurant and hotel industries) may borrow up to the lesser of 3.5 times the average monthly payroll or $2 million.
  2. Borrowers must prove a revenue reduction of at least 25% in any quarter between 2019 and 2020.
  3. Businesses that are a part of one corporate entity shall not receive more than $4 million in second draw PPP loans in aggregate.

Seasonal employers may have a maximum loan amount of the lesser of 2.5 times the average total monthly for payroll for any 12-week period between February 15, 2019 and February 15, 2020 and $2 million. There is also a special calculation for entities that did not exist during the year preceding February 15, 2020.

Additionally, existing borrowers who qualified under the more-than-one-location exemption will continue to qualify for each location that demonstrates they meet the employee head count and gross revenue reduction thresholds.

Only one second-draw loan is allowed per existing PPP borrower. The application can be found here.

Forgiveness Period, Safe Harbor and Application for Forgiveness of Loans of $150,000 or Less

  1. The forgiveness period is now flexible for a period of 8–24 weeks, at the election of the borrower and starts on the date the PPP loan was originated.
  2. The safe harbor provision for curing reductions in employee head count or compensation was extended allowing you to cure the reduction by the end of the relevant covered period rather than 2020 year end.
  3. The application for forgiveness of loans of $150,000 or less was simplified down to a one-page application created by the SBA. The application can be found here. Borrowers will provide the following information:
    • The number of employees retained if the loan is received;
    • The amount of the loan estimated to be spent on payroll costs;
    • The total amount of the loan sought;
    • Covered period dates; and
    • Disbursement date

Borrowers of such loan amounts are not required to submit any supporting documentation with the loan application, but are required to maintain payroll, nonpayroll, and other documents to prove compliance with all PPP requirements for four years after submission of loan forgiveness, as to employment records, and three years as to other records. Second draw borrowers of such loan amounts will only certify revenue loss at the time of the loan application and provide evidence of that revenue loss prior to or as part of the application for forgiveness.

Expanded Definition of Covered Expenses

Additionally, the Economic Aid Act expanded which ‘covered expenses’ are eligible for forgiveness as well as other changes. The revisions for new and existing PPP loans (unless forgiveness has already been determined on an existing PPP loan) include:

  1. Forgivable non-payroll expenses (not applicable to loans already forgiven prior to December 31, 2020):
    • Operations costs – Software or cloud services that help process and track payroll expenses, human resources, sales and filling, inventory, records, and supply tracking, etc.
    • Supplier costs – Goods essential to operations of the borrower at the time the expenditure was made and pursuant to a contract, order, or purchaser order in effect before the covered period of the loan or for perishable goods before or during the covered period of the loan.
    • Worker protection
      • Operating or capital payments for expenses required to adapt business activities to comply with local, state, and federal requirements as of March 1, 2020 for combating COVID-19.
      • Includes purchases, maintenance, or renovation of assets like drive-through windows, air ventilation and filtration, physical barriers, expanding business space, health screening, PPE, etc.
    • Repairs – Costs for repairing property damage from civil unrest in 2020 not covered by insurance.
  2. Forgivable Payroll Costs: Certain group life, disability, vision, or dental insurance will now count as payroll costs.

Additional Limits and Clarifications

Application expansions, limits, and exclusions were also addressed. The Economic Aid Act clarified the following:

  1. Applicants must have been in business on February 15, 2020 to be eligible for any type of PPP loan, including those provided under the Economic Aid Act.
  2. The calculation and eligibility guidance provided for farmers and rangers was expanded.
  3. Businesses are still limited to $100,000 salary caps annualized over the period the business spends the PPP loan proceeds. Bonuses and extra pay are still permitted so long as the caps are not breached.
  4. At least 60% of the forgiven amount must still be payroll costs.
  5. The following are now ineligible for any PPP loans under the Economic Aid Act:
    • Public companies.
    • Entities receiving Shuttered Venue Operator Grants.
    • Entities engaged primarily in political or lobbying activities (including research or advocacy groups and think tanks).
    • Entities listed in 13 CFR 120.110 (excluding certain nonprofits and religious organizations).
    • Foreign Agents Registration Act registrants.
    • Applicants with 20% or more direct/indirect ownership by a Chinese company or with one or more board members who are residents in the Peoples Republic of China.
  6. With respect to any PPP loan made before, on or after December 27, 2020, a PPP borrower may deduct as ordinary and necessary business expenses, such expenses that were paid from the proceeds of its PPP loan, even if that loan is forgiven by the SBA.

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.

Posted by Attorney Hannah E. MuddMudd is a member of Danna McKitrick’s transaction team. As a member of the team she advises clients on a variety of corporate and business transactions including entrepreneurial, real estate, banking, employment, and corporate formation and governance matters.


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