New Paycheck Protection Program Loans and Covid-19 Relief for Small Businesses
January 4, 2021
January 4, 2021
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
The passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was a turning point for coronavirus relief. Many small business owners had exhausted their Paycheck Protection Program (PPP) loans and were in dire need of assistance. The new Act was signed into law by President Donald Trump on December 27 after passing Congress with bipartisan support on December 21. It is part of the $900 billion stimulus package within a $2.3 trillion spending bill for the 2021 fiscal year.
There are six main things to know about the bill focusing on Coronavirus Response and Relief:
Since there is so much in the news about the coronavirus aid package, we wanted to break down the 645-page bill here. It is important to remember that a lot of this could change as the implementation of the package is up to the U.S. Small Business Administration (SBA), which may take 10 or more business days to provide guidance.
Although many things are similar to the Coronavirus Aid, Relief, and Economic Security (CARES) Act that passed in March, there are some new coronavirus aid and loan programs. The main things in the package are:
As part of the coronavirus relief and response package, the Small Business Administration (SBA) will provide economic relief to many small businesses through second draw PPP loans and increased business eligibility.
Since we’ll be focusing on businesses and how they can prepare for small business loan applications from the federal government, it’s important to note that the Act also clarifies PPP eligibility by specifying they must be one of the following:
The new legislation does not allow publicly traded companies to apply for PPP funding.
The second draw program allows â€śsmaller and harder-hit businessesâ€ť who have already used (or plan to use) the full amount of their first loan to apply for more additional PPP funds, up to $2 million.
This second draw program has significantly less money for paycheck protection program loans. The first-round program in early April had $349 billion available while the second round in late April had $320 billion. This program includes only $284 billion. Some of that money is to be distributed to a specific place:
To be eligible for a second draw PPP loan businesses must not employ more than 300 people and be able to demonstrate a reduction in gross sales by at least 25 percent from 2019 to 2020.
As noted above, eligibility for these loans has changed to exclude publicly traded companies. This seems like a move to help small businesses that may have missed out on the $669 billion PPP loan program. Looking at data from the SBA on loans over $150,000, the accommodation and hospitality industry received an average of $32.5 billion. That funding was the majority of financial assistance for the industry and it went to 58,388 companies â€“ over 90 percent are corporations. Most small restaurants are still struggling.
Although the new legislation is focused on venues this time, with $15 billion set-aside, it does have a note on PPP loans for small restaurants. Representative Nydia VelĂˇzquez (D-NY), chair of the Committee on Small Business, wrote that nearly 60 percent of restaurants expect furloughs and layoffs as the â€śpandemic has significantly reduced their bottom lines, threatening their viability and long-term survival.â€ť So, the bill does two things for small restaurants:
In addition, the bill expands what non-payroll expenses can be covered in payroll loans, including:
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act expanded eligibility for nonprofit organizations who can receive a Paycheck Protection Program loan to now include 501(c)(6) organizations, if they meet certain qualifications:
Destination Marketing Organizations are also eligible for PPP loans if they follow the first four qualifications and:
A 501(c)(6) includes “business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit” and do not benefit a private shareholder or individual. These organizations are considered tax-exempt nonprofits.
Destination marketing organizations are nonprofit organizations focused on promoting locations as travel destinations. They are also known as tourist boards or tourism authorities and are generally tied to local government infrastructure. Many have been hit hard by the decrease in travel due to the pandemic.
Most of the same terms for PPP loans from the CARES Act are in effect here as well: loan proceeds must be used on approved payroll and non-payroll costs. PPP loan forgiveness is still based on the 60/40 cost allocation between payroll and non-payroll costs. Also, the PPP Flexibility Act in June 2020, changed forgiveness rules for the program by allowing employers with forgiven loans to defer payment of 2020 payroll taxes to the IRS with half due on December 31, 2021 and the other half in 2022.
With the newly passed Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, PPP borrowers can now use a simplified loan forgiveness application for loans under $150,000 that allows the borrower to receive forgiveness if they:
New loan forgiveness forms will be posted to SBA.gov once guidances have been issued by the Administrator and Treasury in the new year.
The covered period has been changed in this Act. It allows the borrower to choose when their covered period ends. The loan recipient has the option of ending 8 weeks or 24 weeks after the loanâ€™s origination.
The previous PPP loan program deadline of August 8, 2020 has also been extended to March 31, 2021.
Of course, the new covered period wonâ€™t begin until loans start to be disbursed. We are awaiting guidance from the SBA on when that might be, but there is time now to get together your payroll information and be ready to apply when PPP loan applications open.