Late Wednesday evening, the U.S Small Business Administration (SBA) in coordination with the Department of Treasury, issued guidance for the revamped Paycheck Protection Program (PPP) authorized by the Economic Aid Act of 2020.
The newly released guidance includes:
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.3 trillion relief package designed to stem the economic damage wrought by the Covid Pandemic and assist individuals and businesses through this difficult time. The program provides forgivable loans to qualifying businesses that they can use to cover payroll, mortgage interest, rent, and utilities. The first round of the program saw $350 billion appropriated by Congress which ran out in about 2 weeks. Congress authorized an additional $310 billion for the program in April which lasted until August 8th when SBA stopped accepting PPP loan applications. To date, the SBA has approved $525 billion in loans to 5.2 million eligible borrowers. $134 billion of the 2nd appropriation was never disbursed to qualifying borrowers.
The revamped and 3rd iteration of the PPP program provides qualified borrowers with two options to obtain financing: First-time qualified borrowers that did not receive a loan before the application window closed August 8th, 2020, and 2nd Draw borrowers that previously received a loan and meet the eligibility requirements for a 2nd draw loan.
Eligible borrowers that have not previously received a loan under the PPP program can apply for a 1st draw loan when SBA opens the application window. Inconsistent or incomplete guidance, constantly changing rules, and concern by businesses that they would not be able to achieve loan forgiveness were significant deterrents to otherwise eligible borrowers from applying for a loan during the first 2 rounds of the program. Borrowers that chose not to apply for a loan, or that applied for a loan and decided to return the funds, are now eligible to apply for a loan this round, and as a first-time borrower, these eligible businesses will largely follow the program’s original rules.
A business must have been in operation on February 15th, 2020 and meet the following criteria:
The Economic Aid Act increases eligibility to 501(c)(6) business leagues, which includes chambers of commerce, visitors’ bureaus, and destination marketing organizations that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.
First-Draw PPP borrowers may receive a loan amount of 2.5x average monthly payroll costs, up to $10 million. Second-draw borrowers are eligible for a loan amount of 2.5x average monthly payroll costs, up to $2 million. Borrowers will have the option of using 2019 or 2020 payroll to determine average monthly payroll costs. Hard hit businesses such as hotels and restaurants with NAICS code 72 can receive up to 3.5x their average monthly payroll costs.
2nd draw loans are generally subject to the same terms, conditions, and requirements as 1st draw loans. This includes:
The Economic Aid Act authorizes a 2nd draw loan for those businesses that had previously received a loan that meet certain criteria:
The IFR generally defines gross receipts to include all revenue received or accrued (consistent with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Any forgiveness amount of a First-Draw PPP loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts.
Additionally, housing cooperatives with 300 or fewer employees are now eligible to receive a loan under the program. These borrowers were originally shut out of the program by the CARES Act which deemed passive businesses owned by developers and landlords, as well as apartment buildings as ineligible.
Borrowers will be able to use PPP funds for the same payroll and nonpayroll costs permitted during the first phase of the program, while the Economic Aid Act authorizes additional expenses:
Like the first round of loans, borrowers must spend at least 60% of the loan proceeds on payroll during the covered period between 8 or 24 weeks to be eligible for full loan forgiveness. Borrowers that do not meet the 60% spend requirement will experience a reduction in loan forgiveness.
Due to the challenges many minority and women-owned businesses experienced applying for and receiving funding during the first round of the program, the Economic Aid Act earmarks funding specifically for these entities. The ear-marked funding is provisioned as follows:
The SBA intends to take a few steps to ensure increased access to PPP loans for these impacted businesses by implementing the following:
Eligible borrowers will be required to provide supporting documentation with their application to establish eligibility under the program, for either a 1st or 2nd draw loan. This includes:
Wiss is pleased to announce that we will be actively participating and facilitating PPP 2 loans when SBA opens the application window. In conjunction with the AICPA and Biz2Credit, the firm has the ability to submit eligible borrower applications directly through this proprietary fintech portal. This is a nice alternative for eligible businesses, as many remember the difficulties and outright insanity experienced during the 1st phase of funding. Please contact Tricia Meola tmeola@wiss.visioncreativegroup.com to help assess eligibility for a 2nd PPP loan, and to start the process or organizing documentation to be ready to submit the application once the portal opens.