What Small Businesses Need to Know About the Reopened PPP Loan Program

The Paycheck Protection Program reopened on January 19, 2021, with an additional $284.5 billion in new funding awarded under the COVID-19 relief bill…

The Paycheck Protection Program reopened on January 19, 2021, with an additional $284.5 billion in new funding awarded under the COVID-19 relief bill enacted last month. PPP loans will continue to be available to provide economic relief to small businesses adversely impacted by the pandemic. In some cases, businesses that previously participated in the program may be eligible for a second draw.

The SBA reopened the PPP for First Draw PPP Loans the week of January 11, 2021. It began accepting applications for Second Draw PPP Loans on January 13, 2021. Unless further extended, the application period for both PPP loans will end on March 31, 2021.

Extension of Paycheck Protection Program

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”) became law; it extends the authority to make PPP loans through March 31, 2021, and revises certain PPP requirements. Below is a brief summary of some of the key changes, as set forth in the SBA’s latest interim final rule:

• PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs.
• PPP loans may be used to cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
• PPP eligibility is expanded to include 501(c)(6) entities, housing cooperatives, destination marketing organizations, among other types of organizations.
• PPP eligibility is changed for partnerships. If you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred on a PPP loan application filed by or on behalf of the partnership. According to the interim final rule, the SBA and Treasury have determined that limiting a partnership and its partners (and an LLC filing taxes as a partnership) to one PPP loan is necessary to help ensure that as many eligible borrowers as possible obtain PPP loans before the statutory deadline of March 31, 2021. In light of the change, the interim final rule allows a partnership that received a PPP loan to increase its PPP loan amount if it did not originally include the compensation of its partners.
• The revamped PPP provides greater flexibility for seasonal employees. Seasonal employers who received a PPP loan prior to December 27, 2020 may increase the amount of their existing PPP loan by using the revised calculation of the maximum loan amount available under the Economic Aid Act.
• Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount. If a borrower returned all of a PPP loan, the borrower may reapply for a PPP loan in an amount for which the borrower is eligible under the current regulations. If a borrower returned part of a PPP loan, the borrower may reapply for an amount equal to the difference between the amount retained and the amount previously approved; and if a borrower did not accept the full amount of a PPP loan for which it was approved, the borrower may request an increase in the amount of the PPP loan up to the amount previously approved.

Eligible entities can apply for a First Draw PPP Loan until March 31, 2021 using the Paycheck Protection Program First Draw Borrower Application Form.

Second Draw PPP Loans

The Economic Aid Act authorized the SBA to guarantee Paycheck Protection Program Second Draw Loans. Second Draw PPP Loans will generally be subject to the same terms, conditions, and processes as First Draw PPP Loans. Most importantly, the principal balance may be completely forgiven.

Funds from Second Draw PPP Loans can also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector, the maximum loan amount for a Second Draw PPP Loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.

As set forth in the SBA’s interim final rule, a borrower is generally eligible for a Second Draw PPP Loan if the borrower:

• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

Entities interested in applying for a Second Draw PPP Loan must submit SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form) or the lender’s equivalent form, including required certifications and documentation.

Next Steps for Small Businesses

We encourage businesses interested in applying for PPP loans to act quickly. If you need any assistance in regard to a Paycheck Protection Program First or Second Draw Loan or any of the Federal COVID-19 aid programs now available, please contact us. We have a dedicated team of attorneys here to help. 

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Robert A. Marsico, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.