Following intense negotiations in Washington, Congress has finally approved the latest federal stimulus package as part of the Consolidated Appropriations Act, 2021, which is pending the President’s signature as of December 22, 2020. Included in the omnibus spending bill are modifications to the Paycheck Protection Program (“PPP”) under the title the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the “Hard-Hit Small Businesses Act”). The legislation extends some of the stimulus measures enacted by the CARES Act and the Families First Coronavirus Relief Act, along with some new relief programs. Some highlights:
- $284.45 billion for PPP loans, including:
- $35 billion for borrowers that missed out on the first round;
- A “second draw” of funding for eligible borrowers under modified rules; and
- $40 billion reserved for small businesses with up to 10 employees or that are borrowing a maximum of $250k in low-income or moderate-income areas.
- $20 billion of additional funding for the EIDL program, including funds for EIDL advance grants.
- Extension to unemployment benefits through March 14, 2021 (new applicants) or April 5, 2021 (existing recipients) with $300 of supplemental payments per week.
- $600 direct tax credit for eligible persons, reduced by 5% for amount of income exceeding $75k individually or $150k if filing jointly.
- Payroll tax credit for COVID-19 sick or family leave has been extended to March 31, 2021.
- The SBA will make payments on existing SBA guaranteed loans (other than PPP Loans) for an additional 3 months, with a further 5 months (for a total of 8) for certain industries.
- Additional grant program for venues, theaters, museums, and talent representatives, with grant amount up to 45% of 2019 gross revenue.
This alert summarizes some key changes to the PPP included in the Hard-Hit Small Businesses Act, including changes affecting current PPP borrowers and those interested in the second draw.
I HAVE ALREADY RECEIVED A PPP LOAN. WHAT CHANGES SHOULD I KNOW ABOUT?
- As expected, Congress has overruled the IRS and permitted PPP borrowers to deduct expenses paid with PPP funds, or, if applicable, include in basis the amount spent with PPP funds.
- PPP loan forgiveness will not be reduced on account of a $10,000 EIDL advance grant. If your loan forgiveness has already been reduced due to an EIDL advance, the SBA has been directed to issue guidance to confirm all borrowers receive “equal treatment.” These grants will also be excluded from gross income.
- Borrowers may obtain forgiveness for funds spent on (in addition to payroll, mortgage, lease and utility expenses already qualifying) business software or cloud computing services, property damages from vandalism or looting not covered by insurance, purchases from essential suppliers, PPE, or other expenses to improve or adapt business in accordance with federal, state, or local rules or guidance (e.g., sneeze guards, ventilation systems, health screening, outdoor space).
- If your loan was for less than $150,000, the SBA has been directed to issue a new, one-page application for forgiveness.
WHAT DOES THE “SECOND DRAW” OF PPP FUNDING LOOK LIKE?
- Am I eligible? Eligibility will be similar to the first round of PPP funding, except as follows:
- Borrowers may not have more than 300 employees, or, for hotels, casinos, restaurants or other businesses with an NAICS code starting with 72, not more than 300 employees per any physical location (which may exceed 300 in the aggregate).
- Borrowers must demonstrate a decrease in revenue of at least 25% for any fiscal quarter in 2020, as compared to the corresponding fiscal quarter of 2019.
- Ineligible entities include (i) publicly traded companies, (ii) businesses receiving the “shuttered venue operator grants”, (iii) businesses more than 20% owned or controlled by a member of the United States executive branch or Congress, or by a company formed or with substantial operations in China or Hong Kong, or (iv) businesses for which a resident of China serves on the Board of Directors.
- If you missed out on the first round of PPP, you may be eligible for the first and the second draw of PPP funding. The first round of PPP has been extended, with $35 billion of funds reserved for borrowers that have not yet received a PPP loan. Borrowers on the first round will have until March 31, 2021, to spend loan funds.
- How much can I borrow? Borrowers may borrow up to 2.5x the average monthly payroll (or for hotels, casinos and restaurants, 3.5x the average monthly payroll) during either (i) 2019, or (ii) the 1-year period prior to date of application. There is a new overall cap of $2,000,000 on the total loan amount for the second draw of PPP loans. The formula varies for seasonal operators.
- How will forgiveness work? Forgiveness for the second draw of PPP loans will be similar to the first draw, with a streamlined application for borrowers with loan amounts of not more than $150,000. Substantially all of the same rules and limitations applicable to forgiveness for the first draw will apply to the second draw, including the reduction to forgiveness if less than 60% of the PPP loan amount is applied to employee payroll costs.