Overview of Round 2 of the Paycheck Protection Program (PPP 2.0)

 

 

 

Overview of Round 2 of the Paycheck Protection Program (PPP 2.0)

Updated January 11, 2021

As one section of the 2021 Consolidated Appropriations Act, Congress passed and the President signed into law the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”) on December 27, 2020. The Act appropriated $284.45 billion for a second draw of the Paycheck Protection Program (“PPP”) funds which generally offers:

  1. first time PPP loans for businesses/nonprofits that did not receive a PPP loan/grant earlier;
  2. second PPP loans/grants for businesses/nonprofits that need additional funding even if they already obtained a first PPP loan/grant; and
  3. additional funding to be allocated for businesses/nonprofits that returned their original PPP loans/grants or did not receive the full amounts for which they were qualified.

For first time borrowers: https://www.sba.gov/document/sba-form-2483-ppp-first-draw-borrower-application-form

For second time borrowers: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/second-draw-ppp-loans


ELIGIBILITY OR PRIORITY OF THIS ROUND

First Time Applicants and Formerly Rejected Applicants

The basic eligibility requirements for first time PPP Borrowers remain the same, which are these:

  1. Borrower was in operation on February 15, 2020, including small for-profit businesses, tax-exempt not-for-profits, veterans’ organizations, Tribal concerns, self-employed individuals, sole proprietorships, and independent contractors,
  2. Borrower has fewer than 500 employees (however, PPP Borrowers with more than 500 employees can also apply for loans in certain situations),
  3. Borrower must have been harmed by the COVID-19 pandemic, and
  4. Borrower must submit the required documentation along with PPP 2.0 application.

Agricultural enterprises have always been eligible to apply for PPP funds.

Smaller Nonprofits included

This round of funding expands eligibility to smaller nonprofits, including:

  • 501(c)(6) organizations, which include business leagues, chambers of commerce, real estate boards, boards of trade and similar organizations,
  • nonprofit destination marketing organizations (DMOs) with fewer than 300 employees that receive less than 15% of their gross receipts and expenses from lobbying activities during the most recent tax year that ended prior to February 15, 2020,
  • housing cooperatives with 300 or fewer employees, and
  • certain news organizations with 500 or fewer employees at any physical location or is a nonprofit public broadcasting entity.

Second Time Applicants

If your business or nonprofit* already received a PPP loan, here’s how to determine if your business or nonprofit is eligible for PPP 2.0:

  1. It has no more than 300 employees;
  2. It has used or will use the full amount of first PPP loan prior to disbursement of the second draw loan; and
  3. It can demonstrate at least a 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter of 2020 relative to the same quarter in 2019.

*If businesses or nonprofits were not in existence in 2019, the Act includes additional eligibility requirements.


Additional Changes Under the Act that Will Affect Borrowers

  • Tax Deduction. Expenses related to PPP loan forgiveness are deductible for federal tax purposes.
  • Prior Return or Reduction of Loan Amount. Eligible recipients that returned or did not receive or did not accept the full amount of the PPP loan that they were (or could have been) entitled to may request an increase in the amount of the loan to the maximum applicable, as long as, the Borrower had not received forgiveness of the original PPP loan prior to the date of the enactment of the Act (which was December 27, 2020).
  • Public Companies Excluded. In an effort to get these funds into the hands of small businesses and nonprofits, public companies are specifically excluded from applying for this round of funding.
  • No More EIDL Reduction For PPP Forgiveness. The reduction of the forgiveness under the PPP by the EIDL advance of up to $10,000 is now repealed. This means that Borrowers that received both a PPP loan and an EIDL advance “grant” of up to $10,000 are no longer required to subtract their EIDL advance from their PPP forgiveness calculation.
  • Simplified Forgiveness Process for PPP Loans up to $150,000. The Act allows for a simplified loan forgiveness process for PPP loans of up to $150,000 or less. This simplification process allows the eligible Borrower to follow a simplified forgiveness process upon signing and submitting a one page certification (to be made available by January 20, 2021) to its lender that certifying the following:       
    • Describe the number of employees the Borrower is able to retain because of the PPP loan; the estimated amount spent on eligible payroll costs; and the total PPP loan value; and
    • Attest that it accurately provided the required certification and complied with the applicable PPP requirements.
  • Employee Retention Credit. The Act significantly expands and changes the Employee Retention Credit for businesses and individuals.  The IRS has yet to update its FAQs to reflect these changes (watch for this to be updated soon). Some of the changes include:
    • As of January 1, 2021, the credit will be 70% of qualified wages plus the cost to continue providing health benefits to the employee.
    • A company that received the PPP is no longer ineligible to receive the employee retention credit and this change is retroactive to the effective date under the original law for wages paid after March 12, 2020. However, the credit may not be claimed for wages paid with the proceeds of a PPP loan that have been forgiven.

 

Summary of PPP 2.0 Terms:

  • Applications Open: January 11, 2021 through community banks for truly small and underserved businesses
  • Applications Close: March 31, 2021
  • Loan Amounts: Maximum of $2 million
  • Calculation of Loan Amount:
    • 2.5 times the average monthly payroll costs based on trailing 12 months payroll costs prior to second draw loan or the calendar year 2019; OR
    • Hospitality Industry: If your business is a restaurant, hotel, and other establishment that provides customers with lodging and/or prepares meals, snacks and beverages for immediate consumption (businesses with NAICS code beginning with 72), the loan amount is calculated upon 3.5 times the average monthly payroll costs.
  • Covered Period: Borrowers may elect an 8 week or 24 week “covered period”
  • Expanded Uses of Loan Amount: PPP proceeds may cover the following costs: 
    • Payroll support (such as: paid sick leave, medical, family and costs related to continuation of group health insurance care benefits during periods of leave, and also vision, dental, disability and life insurance)
    • Employee salaries, commissions and other compensation
    • Mortgage interest
    • Rent (including rent under a lease agreement)
    • Utilities
    • Interest under debt obligations incurred before February 15, 2020
    • Operations expenditures, such as:
      • payment for any software, cloud computing, and other human resources and accounting needs
    • Property damage costs, such as:
      • costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance
    • Supplier costs, such as:
      • expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the PPP loan that are essential to operations at the time at which the expenditure was made
    • Worker protection expenditures, such as:
      • personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020 and the end of the national emergency declaration
  • No Collateral Will be Required; No Personal Guarantee Will Be Required.
  • Interest Rate for PPP Funds turned PPP Loans/Amounts Not Forgiven1% percent
  • Maturity of Loan: 5 years 
  • Forgiveness: “Payroll costs” must constitute at least 60% of the forgiven amount; non-payroll costs may constitute no more than 40% of the forgiven amount
  • Payroll Cap: Payroll costs are capped at $100,000 per employee
  • Affiliation Rule: The same affiliation rules that apply for First Draw PPP loans apply for Second Draw PPP loans, meaning, in most cases, that a Borrower is considered together with its affiliates to determine eligibility for PPP funds.