SBA Releases Guidance on Paycheck Protection Program

PPP Reopening Week of January 11 through March 31, 2021

The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced on January 8 that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers who have been most impacted by COVID-19.

This round of the PPP provides $284 billion in funding through March 31, 2021 and allows certain existing PPP borrowers to apply for a Second Draw PPP Loan.

Key PPP updates and clarifications include:

• PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
• For the first PPP loan, the maximum loan amount is the lesser of $10 million or a 2.5 times the borrower’s average monthly payroll costs from 2019 or 2020;
• PPP loans will cover payroll costs, rent, mortgage, utilities and additional expenses, including refinancing an SBA EIDL loan; personal protection equipment; technology operations expenditures; supplier costs; property damage costs related to public disturbances in 2020;
• Payroll costs have been expanded to include compensation to employees (salary, wages, commissions, or similar compensation); cash tips or the equivalent; payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation;
• The SBA retains the 60/40 requirements where at least 60 percent of the PPP loan proceeds must be used for payroll costs;
• Loans will be guaranteed under the PPP under the same terms, conditions and processes as other 7(a) loans, with certain changes including but not limited to: (1) The guarantee percentage is 100 percent; (2) No collateral will be required; (3) No personal guarantees will be required; (4) The interest rate will be 100 basis points or one percent; (5) The maturity date on a PPP loan is five years; and (6) certain fees are waived. The “credit elsewhere test” does not apply for the PPP.
• Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount;
• Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan;
• Borrowers begin paying principal and interest on their PPP loan within 10 months after the end of the loan forgiveness covered period unless they submit to their lender a loan forgiveness application;
• To receive full loan forgiveness, a borrower must use at least 60 percent of the PPP loan for payroll costs, and not more than 40 percent of the loan forgiveness amount may be attributable to nonpayroll costs;
• A business that is otherwise eligible for a PPP Loan is not rendered ineligible due to its receipt of legal gaming revenues;
• Eligible entries include 501(c)(6) organizations so long as they meet other requirements like (1) they do no receive more than 15% of their receipts from lobbying or lobbying activities; (2) the lobbying activities of the organization do not comprise more than 15 percent of the total activities of the organization; (3) the cost of the lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year of the organization that ended prior to February 15, 2020; and (4) the organization employs not more than 300 employees;
• Businesses are not eligible if: (1) they were not in operations on February 15, 2020; and (2) the applicant or the owner of the applicant is the debtor in a bankruptcy proceeding, either at the time it submits the application or at any time before the loan is disbursed.

Second Draw PPP:

•  A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
•  The maximum loan amount is the lesser of $2 million or a 2.5 times the borrower’s average monthly payroll costs based on the calendar years 2019 or 2020 (or 3.5 times the average payroll costs if your business is under NAICS code 72).
•  Second Draw PPP Loans are eligible for loan forgiveness on the same terms and conditions as First Draw PPP Loans.

Additional information on the PPP released by SBA can be found here: SBA’s Interim Final Rule on the Second Draw PPP and SBA’s Interim Rule on Changes Made by the Economic Aid Act

Questions on the PPP and other COVID-19 relief provisions? Please contact Sarah Helton, Partner at Michael Best Strategies, at Sarah.Helton@michaelbest.com or 202-747-9575.