On December 21, 2020, Congress passed a $900 billion aid package to help address economic hardships wrought by COVID-19. The legislation provides additional funds for the Paycheck Protection Program (PPP) and modifies various features of the program, including eligibility and forgiveness criteria. We summarize below certain portions of the legislation as it relates to the PPP.
What’s New for the PPP
Second Draw Loans
- The legislation permits second PPP loans to certain entities, known as a “PPP second draw.” To obtain a PPP second draw loan, eligible entities must:
- Not have more than 300 employees, subject to rules on entities with multiple physical locations;
- Have already used, or will use, the full amount of their first PPP loan; and
- Have suffered at least a 25% decline in gross receipts in the first, second or third quarter of 2020 compared with the same quarter in 2019. The law provides other requirements for businesses not in operation at those points in 2019.
- Generally, PPP second draw borrowers may borrow up to 250% of their average monthly payroll costs for the year before the loan or the calendar year, subject to a $2 million cap.
- PPP second draw loans may be eligible for forgiveness in the amount of borrowers’ combined payroll costs; mortgage, rent and utility payments; and other expenses entailed in the legislation. Importantly, forgiveness may be reduced for borrowers who reduce employee headcount and/or salaries by certain amounts.
Uses of PPP Loan Funds and Forgiveness
- Group life, disability, vision and dental insurance are included in payroll costs.
- Certain expenses may be paid using PPP funds, including specified expenses relating to operations, property damage, suppliers and worker protection.
- Borrowers can choose a covered period for forgiveness of between eight and 24 weeks following a loan’s origination.
Availability of PPP
- The time of the PPP is extended to March 31, 2021.
- There is a simplified application process for forgiveness of loans under $150,000.
- Some small local media businesses such as regional newspapers and TV and radio broadcasters may now qualify for PPP loans if they meet certain size restrictions and disseminate certain locally focused or emergency information.
- Certain borrowers who returned some or all of a PPP loan may be able to reapply for the maximum amount, provided that forgiveness was not received. The Small Business Administration will provide guidance on this issue.
- Publicly traded companies will not be eligible for PPP loans.
- An entity that was not in operation on February 15, 2020, will not be eligible for an initial or second PPP loan.
This is only a brief overview of a lengthy and complex new piece of federal legislation. Should you have questions, please do not hesitate to contact any of the authors or the Manatt professional with whom you work.