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New PPP guidance issued by SBA, Treasury

Congress revived the PPP as part of the $900 billion COVID-19 relief bill that was signed into law on Dec. 27. The new PPP has $284.5 billion available, including $35 billion for first-time loans.

The guidance includes two interim final rules (IFRs) and “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns”:

• The 82-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended”
• The 42-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans”
• a three-page “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns”.

Second-draw PPP loans

One of the biggest changes with the new PPP is that Congress made funding available to businesses that had previously received a PPP loan. Borrowers are eligible for a second-draw PPP loan of up to $2 million, provided they have:

• 300 or fewer employees.
• Used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower.
• Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019.

First-draw PPP loans

The Economic Aid Act makes first-draw PPP loans available to borrowers that were in operation on Feb. 15, 2020, and come from one of the following groups:

• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
• Sole proprietors, independent contractors, and eligible self-employed individuals.
• Not-for-profits, including churches.
• Some Accommodation and food services operations with fewer than 500 employees per physical location.
• Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.
• News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business or not-for-profit public broadcasting entities with a trade or business under NAICS code 511110 or 5151. The size limit for this category is no more than 500 employees per location.

PPP loan maximum amounts

In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the year prior to the loan. PPP borrowers with NAICS codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.

The maximum for a first-draw PPP loan is $10 million, the same as in the original PPP.

Eligible costs

PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs. As with the first round of the PPP, the costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities. In addition, the following costs are now eligible:

• Covered worker protection and facility modification expenditures
• Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
• Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
• Covered operating expenditures, which refer to payments for any business software or cloud computing service that facilitates 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.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks.

Simplified forgiveness

Borrowers that receive a PPP loan of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA has yet to create the simplified application form but must do so by Jan. 20. The form may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Bundle up & stay warm out there!