PPP Loan Updates - What's New for 2021
By Amy Lou Blunt, EVP, Chief Credit Officer
On December 27, 2020, the Economic Aid to Hard-Hit Businesses, Nonprofits, and Venues Act (the Economic Aid Act) was signed into law. The Act reauthorizes and modifies the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program (EIDL). The SBA issued guidance to implement these new provisions January 6, 2021. The following information has been gleaned from that guidance.
Let’s begin with what the Act provides for our existing PPP borrowers:
Simplified Forgiveness Applications
The Act simplifies the forgiveness application process for borrowers who have received, or will receive, PPP loans in the amount of $150,000 or less. The SBA is in the process of creating a 1-page form, to be finalized no later than January 20, 2021. This 1-page form is prepared by the borrower and includes required certifications and documentation to be signed, and provided to your Lender for submission.
Repeal of the EIDL Advance Holdback
The Act also repealed the requirement for SBA to reduce a Borrower’s loan forgiveness amount by the amount of an EIDL Advance received. We have not yet been informed on how the SBA will reimburse the EIDL holdbacks from those loans processed already, but we have been assured that they will. Going forward, this will no longer be part of the PPP forgiveness calculation.
What to expect going forward
Reauthorization of the Paycheck Protection Program
The Act re-opens applications for businesses seeking PPP funds for the first time (Draw 1). It also expands the authorized uses for PPP loan proceeds and creates more flexibility in obtaining loan forgiveness. The Act also creates an opportunity for those businesses that have already obtained a PPP loan, to reapply for a second draw under the program (Draw 2), with additional (more restrictive) eligibility guidelines imposed.
Here are some of the highlights you should know:
- The new application deadline to apply for the PPP is March 31, 2021.
- Applicants who did not previously receive a PPP loan can apply for a Draw 1 loan, under the original criteria established for eligibility under the CARES Act.
- First time PPP applicants will use SBA Form 2483.
- Applicants who did previously receive a PPP loan may apply for a Draw 2 PPP loan, if they are eligible under the NEW criteria.
- The business must employ no more than 300 employees, AND
- Must demonstrate at least a 25% reduction in gross receipts in either the first, second or third quarter of 2020, compared to the same quarter in 2019. The Act goes further to state that, a borrower that was in operation all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019, and the borrower submits copies of its annual tax forms substantiating the revenue decline.
- The Draw 1 PPP loan must have been forgiven or the full amount of the Draw 1 PPP loan proceeds must have been used or will be used prior to disbursement of a Draw 2 PPP loan. Any forgiveness amount of a Draw 1 PPP Loan that a borrower received in 2020 is excluded from a borrower’s gross receipts.
- Draw 2 PPP Applicants will use a new application form, SBA Form 2483-SD, currently under development.
- Certain businesses are prohibited from applying for a Draw 2 PPP loan:
- Businesses not in operation on February 15, 2020
- A person or business that received “Shuttered Venue Operators” grant
- Publicly traded businesses
- Businesses primarily engaged in lobbying
- 501.c.6 organizations that constitute professional sports leagues and entities where lobbying comprises more than 15% of receipts or activities
- Business types listed in 13 CFR 120.110, other than non-profit businesses or businesses engaged in teaching, instructing or counseling, whether religious or secular
- Any business of which 20% of its economic interests is owned by an entity created in or organized under the laws of the People’s Republic of China, or Hong Kong, or has significant operations in the PRC or Hong Kong, or any business that has a board member who is a resident of the PRC.
There was much confusion in the program in 2020 regarding the “Covered Period”, which is the period of time that the proceeds are to be deployed for eligible expenses in order to qualify for forgiveness.
Under this Act, the Covered Period has been redefined to begin on the date of disbursement of the PPP loan funds, and ends on a date selected by the PPP borrower, which is not less than 8 weeks and not more than 24 weeks. (Prior to this Act, PPP borrowers had to select either 8 weeks or 24 weeks only.)
Maximum Loan Amounts
The method to determine your Draw 1 PPP Loan amount was defined in the CARES Act, and has not changed. You can review the method for calculation both on the application instructions as well as in the guidance at www.sba.gov. To determine the maximum amount of your Draw 2 PPP loan, select which category best fits your business:
- For non-seasonal employers, the average total monthly payroll costs, averaged over the one year period before the date of the loan, OR calendar year 2019, times 2.5; or
- For seasonal employers, the average total monthly payroll costs for any 12-week period between February 15, 2019 and February 15, 2020, as chosen by the PPP applicant, times 2.5; or
- For employers with NAICS codes beginning with 72 (Accommodation and Food Services), the average total monthly payroll costs, averaged over the one year period before the date of the loan, OR calendar year 2019, times 3.5.
You will still need to submit your supporting documentation to substantiate your costs and calculation of your Loan Amount, as required for Draw 1 Loans.
The Maximum amount of a Draw 2 PPP loan is $2,000,000, as compared to Draw 1 limit of $10,000,000.
Authorized Use of PPP Loan Proceeds
The original authorized use of PPP loan proceeds included payroll costs, utilities, rent and interest on business mortgages. The Act has expanded the authorized use of loan proceeds for both Draw 1 and Draw 2 PPP loans to also include:
- Covered Operations Expenditures: payments for business software or cloud computing services that facilitates business operations;
- Covered Property Damage Costs: related to property damage from vandalism or looting due to public disturbances in 2020, not covered by insurance;
- Covered Supplier Costs: essential to operations or made pursuant to a contract in effect at the time of the PPP loan;
- Covered Worker Protection Expenditures: operating or capital expenditures made to comply with requirements published by national or state health and human services administration, from March 1, 2020 until the end of the national emergency related to COVID-19; and
- Certain Group Insurance Payments: group life, disability, vision and dental insurance benefits.
New SBA Application and Forgiveness Forms
While we have received formal SBA guidance on the process, we are still awaiting access to new forms and application instructions, which we will make available to you as we have in our prior messages.
I hope this update answers some of the questions that have arisen; we will keep you informed as the Act is implemented and we have the tools in place to facilitate this next round of relief. You will also want to consult with your CPA on these matters. These two websites also provide a great deal of valuable and specific, information: www.sba.gov and www.treasury.gov.
RBAZ PPP clients should send queries and forms to our dedicated inbox at [email protected] Let’s all focus on this as a springboard to prosperity in 2021!