What You Need to Know About the Next Round of PPP Loans
Last week the SBA and Treasury released both Interim Final rules and borrower loan application forms related to the reconstituted PPP loans.
The application form release came after the SBA and Treasury announced earlier Friday that the application window for $284 billion in PPP forgivable loans will begin again on January 11, 2021, initially for community financial institutions (CFIs) that serve minority- and women-owned businesses to make loans. Specifically, CFIs can begin making loans to first-time PPP borrowers on January 11 and second-time PPP borrowers on January 13.
The SBA and Treasury said the PPP would open to all lenders a few days after the opening for CFIs, but they have not specified a date as of this email.
Congress revived the PPP as part of the $900 billion COVID-19 relief bill that was signed into law on Dec. 27. The new PPP has $284.5 billion available, including $35 billion for first-time loans and $15 billion set aside for community financial institutions.
Earlier in the week the SBA and Treasury issued new guidance for the new PPP, which shares many of the same rules as the old PPP but also has some significant differences. The guidance came in the form of three documents. We have attached those three documents here which are as follows:
- An 82-page interim final rule (IFR) called “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act,” which consolidates eight months of rules released for PPP forgivable loans for first-time borrowers and incorporates changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260. (named here as IFR – Consolidated)
- A 42-page IFR called “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans,” which establishes guidelines for new PPP loans to businesses that previously received a PPP loan.(named here as IFR – Second Draw)
- A three-page document called “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns,” which includes a commitment from the SBA to make at least the first two days of the PPP application window open exclusively to applications from community financial institutions.(named here as CFI Directions)
Recap of PPP borrower newly released application forms
The PPP borrower application forms released Friday contain instructions on how to calculate payroll costs consistent with the guidance provided on Wednesday. In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the twelve months prior to the loan. PPP borrowers with North American Industry Classification System (NAICS) codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.
The forms also outline adjustments to the calculations for seasonal businesses, new businesses, farmers and ranchers, and partnerships.
The maximum loan amount is $10 million for first-time borrowers and $2 million for second-time PPP borrowers.
PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on the following eligible costs: payroll, rent, covered mortgage interest, and utilities, covered worker protection and facility modification expenditures, covered property damage costs, covered payments to suppliers and payments for business software or cloud computing services that facilitate business operations, product or service delivery, and a number of back-office functions, including accounting. There are some interesting additions here that bear investigation.
Many of the following regulations will be familiar but need to be reviewed. We have attached the revised Form 2483 application for new PPP loans.
To be eligible for full loan forgiveness, PPP borrowers must spend no less than 60% of the funds on payroll over a covered period of their choice between eight and 24 weeks.
First time PPP loans are available to borrowers that were in operation on Feb. 15, 2020 and are from one of the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations with NAICS codes starting with 72 that have fewer than 500 employees per physical location.
- Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations” that have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.
- Certain news organizations.
Borrowers are eligible for a second-draw PPP loan of up to $2 million, provided they have:
- 300 or fewer employees.
- Used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The IFR also clarifies that the borrower must have spent the full amount of the first PPP loan on eligible expenses.
- Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or, in a provision added in the IFR, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019. The guidance goes on to explain “gross receipts” to follow the method of accounting used by the applicant.
We have attached form 2483-SD here for second loan applications.
For those of you who were either turned down for the original PPP or missed the filing deadline, you have another opportunity to apply. You may also include the EIDL loan you may have received and refinance it here. If you need help in the application process please reach out to us and we will be happy to assist.
For those fortunate to receive funds under the original PPP, you have another chance to ease the economic burden if you can prove you have been hurt by the economic turndown. If you use the same lender they already have your original payroll data that you used on file which can be used again. In order to prepare, review your books and records to see if you can document a 25% downturn in gross receipts either year over year or in any given quarter in 2020 when compared to 2019. If you need our help in doing so please do not hesitate to ask.
As always we are to help in any way we can.
The Partners and Staff of LHF