Paycheck Protection Program Update: Additional COVID Relief Under the Coronavirus Relief, Relief, and Economic Security Act (“CARES Act”)
On December 27, 2020, President Trump signed into law the $2.3 trillion Coronavirus Relief and Government Funding Bill. In addition to other provisions, the law specifically adds $284 billion to the already successful Paycheck Protection Program (“PPP”) previously enacted under the CARES Act. PPP loans will be available to both first-time borrowers and some second-time borrowers, but different criteria apply to each group.
While the Small Business Administration (“SBA”), the federal agency primarily responsible for administering the PPP, has yet to announce details and guidelines specifically related to this additional funding, the following key details of the program are described in the new law itself:
- The following groups of first-time borrowers are eligible for PPP loans:
- borrowers who had been eligible for PPP loans should be eligible
- non-profit organizations (including churches and, for the first time, professional associations and other tax-exempt organizations under Section 501(c)(6) of the Internal Revenue Code), under subject to meeting certain criteria (such as employing no more than 300 employees, not being primarily engaged in political or lobbying activities)
- businesses that have previously elected to take the employee retention tax credit
- news organizations (which were not previously eligible), subject to meeting certain criteria (for example, employing no more than 500 employees per physical location or otherwise meeting the applicable SBA size standard, certifying that the PPP loan proceeds will be used for the company involved in the production or distribution of local or emergency targeted information)
- certain hotel and food service operators with less than 300 employees per location that fall under NAICS code 72
- A borrower who received funding in the first round is eligible to receive a second financing cycle if it meets the following eligibility criteria: (i) has less than 300 employees, (ii) has used or will use the full amount of the first PPP loan, and (iii) has experienced a 25% decline in its gross receipts at least one quarter of 2020 compared to the same quarter in 2019. The maximum loan amount for second borrowers is limited to $2,000,000.
- Borrowers who repaid PPP loans in the first round can reapply for a PPP loan in this second round.
- Funds have been earmarked for distribution to (i) performance venues, independent cinemas and cultural institutions, (ii) “very small businesses” through community lenders such as Community Development Finance Institutions and minority depository institutions, and (iii) low-income settlements and underserved communities.
- The focus will be on minority and women-owned businesses.
- PPP loan proceeds will be canceled if at least 60% of the loan proceeds have been used to pay eligible expenses which (in addition to employee salaries, mortgage interest, rent and utility costs previously approved under of the PPP1) now includes expenses for worker protection and modification of facilities to comply with COVID-19 health guidelines, certain costs of eligible suppliers and certain costs of software and cloud computing and accounting payments.
- Reversing the IRS, the new law clarifies that businesses whose PPP loan has been canceled can continue and deduct business expenses that were paid with loan proceeds (this applies to both new PPP loans and to outstanding PPP loans).
- The law provides a simplified forgiveness process for loans up to $150,000.
- The amount forgiven shall not be reduced by the amount of any economic disaster loan advance (up to $10,000) received.
While most borrowers remain eligible to borrow up to a maximum of 2.5 times average monthly payroll costs, operators of hotels and food services that fall under NAICS code 72 are now eligible to borrow up to to 3.5 multiplied by the monthly payroll costs.
PPP loans will be available until March 31, 2021. Borrowers will be able to choose a covered period of eight to twenty-four weeks in which to spend PPP loan proceeds on eligible expenses.
In addition, the law provides $20 billion for new economic disaster loans for businesses in low-income communities, $43.5 billion for SBA debt relief payments, and increases the refundable credit by employee retention from $5,000 per employee for all of 2020 to $7,000 per employee per calendar quarter. until the second quarter of 2021 by changing the calculation from 50% of salaries paid up to $10,000 per employee for all calendar quarters of 2020 to 70% of salaries paid up to $10,000 per employee for any quarter until in the second quarter of 2021.
Regulations must be published within 10 days of the adoption of the law.