On December 27, 2020 Congress signed into law a new round of Paycheck Protection Program (PPP) as part of the $900 billion COVID-19 relief bill. The previous law provided $525 billion in forgivable loans over five months before halting applications in August 2020.
An important change in the new PPP legislation is the opportunity for businesses that previously received assistance to receive additional funding.
Second Draw PPP Loan
Businesses are eligible for a second 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
- Shown a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
You may find additional guidance from the US Department of Treasury on "Second Draw" PPP Loans here.
New PPP Loans
New PPP loans are also available to first-time borrowers from 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 (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 500 employees per physical location.
The legislation also allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them. You may find additional guidance from the US Department of Treasury on "First Draw" PPP loans here.
PPP Loan Terms
The costs eligible for loan forgiveness in this round of PPP continue to include payroll, rent, covered mortgage interest, and utilities. This new round also considers the following for potential forgiveness:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that were essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
According to updated Small Business Administration (SBA) guidance, to be eligible for full loan forgiveness, borrowers will have to spend a minimum of 60% of the funds on payroll over a covered period of either 8 or 24 weeks — the same parameters PPP had when it stopped accepting applications in August.
Borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, but the maximum loan amount is now $2 million. Borrowers with North American Industry Classification System (NAICS) codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.
Simplified Application & Other Items
The new COVID-19 relief bill also:
- Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if the borrower signs and submits to the lender a certification that includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.
- Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
- This modification in the law repeals the requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan advance from their PPP forgiveness amount.
We encourage to you consult your accountant or legal counsel on how these new rules may impact your business. You may find up to date information from the SBA at www.sba.gov/ppp. Should you have any questions about the PPP loan process with Seacoast, please contact us at 866.605.0564.