In March 2020, the Paycheck Protection Program (PPP) came into play as a result of the CARES Act. Many businesses were quick to jump at the opportunity to secure additional funding due to the dramatic impact the shutdowns had on their operations. However, other businesses did not take advantage of the loan program, either because they were an ineligible type of business, or they simply didn’t have enough economic uncertainty to qualify. Now, those businesses have another opportunity available.
On December 27, 2020, the Consolidated Appropriations Act of 2021 (CAA) was signed into law and authorized an additional $284 billion in new PPP loans. The funding is available both for first time PPP borrowers and previous PPP borrowers who need additional funding. The CAA also relaxed certain rules governing the program and made many retroactive changes to cover existing PPP loans.
Summary of PPP Loan Changes
If your organization didn’t take advantage of the PPP loan program in 2020 but is now considering a loan, below is a summary of what has changed for first time PPP borrowers.
| Original Rules (CARES Act – 2020) | Current Rules (CAA – 2021) |
|
|---|---|---|
| Application deadline | August 8, 2020 | March 31, 2021 |
| Covered period | Either an eight or 24 week period. | Any period between eight and 24 weeks. |
| Eligible borrowers (subject to certain employee count caps) | The following entities that (generally) have no more than 500 employees: • Sole proprietors, independent contractors, and self-employed individuals • Businesses • Nonprofits under 501(c)(3) • Tribal businesses • Veterans organizations under 501(c)(19) | Previously eligible entities, plus certain: • Housing co-ops with fewer than 300 employees • News organizations • 501(c)(6) organizations with fewer than 300 employees • Destination marketing organizations with fewer than 300 employees • Businesses in bankruptcy |
| Ineligible borrowers | • Entities with more than 500 employees based in the U.S. • Entities with adequate access to other sources of funding | Previously ineligible borrowers, plus: • Businesses not in operation as of February 15, 2020 • Publicly traded companies • Organizations receiving a Shuttered Venue Operator Grant |
| Maximum loan amount for non-seasonal employers | Generally, 2.5 times the trailing 12-month (or 2019) average total monthly payroll costs, to a max of $10 million. | Existing rules, plus: • Alternative method for farmers and ranchers |
| Maximum loan amount for seasonal employers | Generally, 2.5 times the average total monthly payroll costs over the 12-week period starting 2/15/2019, to a max of $10 million. | Seasonal employers can use any 12-week period in the 12-month period starting 2/15/2019. |
| Increasing an existing loan amount | • Originally, guidance required loans to be disbursed in a single disbursement. • Subsequent guidance allowed increases for partnerships or seasonal employers who received loans before certain guidance was issued and thus may not have received their maximum loan amount. | • Borrowers who returned all or part of a loan may reapply for an increase up to their maximum loan amount. • Borrowers who did not accept the full loan amount may request a modification to increase the amount to their maximum loan amount. |
| Eligible expenses for forgiveness | • Payroll • Mortgage interest • Rent • Utilities | Existing categories, plus: • Covered software/cloud • Covered property damage • Covered supplier costs • Covered worker protection |
| Eligible payroll costs | • Compensation to U.S. employees • Tips • Leave • Separation allowance • Group health care • Retirement benefits • State/local payroll taxes | Definition expanded to now include: • Group life insurance • Disability insurance • Vision and dental insurance |
| Deadline to restore FTE/wage levels to avoid a forgiveness reduction | The earlier of 12/31/2020 or the date the loan forgiveness application is submitted. | For loans made on or after 12/27/2020, the last day of the loan’s covered period. |
| Streamlined forgiveness | Loans ≤ $50,000 may be forgiven by providing a one-page certification. | Loans ≤ $150,000 may be forgiven by providing a one-page certification, but only those ≤ $50,000 can be exempt from any reductions in the forgiveness amount. |
| Economic Injury Disaster Loan (EIDL) Advances | EIDL advances are deducted from the forgiveness amount. | EIDL advances are not deducted from the forgiveness amount. |
| Tax deductibility | Expenses used for PPP loan forgiveness are not tax deductible | Expenses used for PPP loan forgiveness are tax deductible. |
| Employee Retention Tax Credit | Employers receiving a PPP loan are ineligible to take the ERTC. | Employers receiving a PPP loan are eligible to take the ERTC. |
In Conclusion
If you missed the opportunity to apply for a PPP loan in 2020, you now have a second chance to do so. The funds can provide a much-needed source of revenue to your organization in a time of uncertainty. With their low interest rates, a PPP loan might make economic sense for you regardless of whether it is ultimately forgiven.
Borrowers still need to meet the eligibility requirements and be aware of the forgiveness rules associated with the loan. One item that the CAA has not changed is the required certification statement attesting to the economic need of the loan. The SBA’s Borrower Application Form contains the full list of required certifications, so potential applicants should consider these when deciding whether to apply. For more on the latest eligibility rules for First Draw loans, see our recent article.
If you have any questions regarding PPP loans, the forgiveness process, employee retention tax credits, or any other available Coronavirus relief options, please contact a Clark Nuber advisor.
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