PAYCHECK PROTECTION PROGRAM
The Paycheck Protection Program (PPP) provides small businesses and sole proprietorships cash flow assistance through 100% federally guaranteed loans. The PPP is intended to encourage eligible employers to keep employees on their payroll, despite the economic hardship related to the COVID-19 pandemic. Small businesses may now apply to receive a first-time or second-time forgivable PPP loan. There are certain amounts allocated for smaller borrowers and underserved communities.
The American Rescue Plan Act (ARP) was signed into law March 12, 2021, adding $7.25 billion to the program.
APPLICATION DEADLINE: MAY 31, 2021
- Small businesses with 500 or fewer employees
- 25 percent revenue loss during the first, second or third quarter of 2020
- NEW: 501(c)(6) organizations with less than 300 employees (excluding lobbying organizations)
- Destination marketing organizations (DMOs)
- Housing cooperatives
- Newspapers, broadcasters and radio stations
- Faith-based organizations
- Agricultural businesses and Farm Credit System Institutions
- Seasonal employers
- NEW: 501(c)(3) nonprofit organizations with less than 500 employees per physical location
- NEW: Veterans organizations with less than 500 employees per physical location
NEW: Additional covered nonprofit entities are now eligible.
- 501(c) excluding 501(c)(3), 501(c)(4), 501(c)(6), or 501(c)(19) organizations
- Must not receive more than 15 percent of receipts from lobbying activities
- Lobbying must not comprise more than 15 percent of activities
- Cost of lobbying activities must not exceed $1 million during the most recent tax year that ended prior to Feb. 15, 2020
- Less than 300 employees
As of February 23, 2021, several barriers have been eliminated:
- Small business owners with prior non-fraud felony convictions are now eligible
- Small business owners who are delinquent on their federal student loans are now eligible
- Non-citizen small business owners who are U.S. residents may use their Individual Taxpayer Identification Numbers to apply for relief
- Borrowers may defer principal and interest payments until the SBA compensates lenders for any forgiven amounts, instead of the previous six month deferral period. Borrowers must apply for loan forgiveness within 10 months of the end of the covered period
- Borrowers loan duration period is now five years (previously two years)
- Loans may be spent over an 8 to 24 week period following disbursement
- Employers may spend only 60 percent of the loan proceeds on payroll costs, leaving 40 percent of the loan to non-payroll expenses such as mortgage interest, rent and covered utilities.
There are four types of accepted lenders for PPP loans.
- Community Financial Development Institution (CDFI)
- community development financial institution
- minority depository institution
- Certified development company
- Minority Depository Institution (MDI)
- Community Development Corporation (CDC)
- Microlender Intermediary
Second Draw Loan
The expanded PPP allows borrowers to apply for a second PPP loan. The maximum loan amount for the second draw loan is limited to $2 million. Businesses or organizations must have been in operation on February 15, 2020 for a second draw. Loan forgiveness requirements and calculations remain the same.
- Same business types as first round of PPP loans
- 300 or fewer employees
- Have used or will use the full amount of the initial PPP loan
- At least a 25 percent reduction in gross receipts in the first, second or third quarter of 2020 compared to the same quarter of 2019. Applications submitted on or after Jan. 1, 2021 are eligible to use the fourth quarter of 2020.
- 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year
- Seasonal employers may calculate their maximum loan amount based on a 12-week period from Feb. 15, 2019 to Feb. 15, 2020.
- Businesses in Accommodations and Food Services may receive loans of up to 3.5 times average monthly payroll costs.
Small businesses can have PPP loans fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. Loans received before, on or after the enactment of the Emergency Coronavirus Relief Act of 2020, excluding those whose loans are already forgiven, are eligible to use the expanded forgivable expenses. Business expenses paid for with PPP funds are now tax deductible. Businesses no longer need to deduct their EIDL Advance from the forgiveness amount. For more information on loan forgiveness, visit the SBA’s website.
Calculating Loan Forgiveness
A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 24- or 8-week period beginning on the date of the loan’s origination:
- Payroll costs (includes tips, commissions, bonuses or other forms of incentive pay, employer portions of health care benefits and retirement plans)
- Interest on mortgage obligation incurred in the ordinary course of business
- Rent on leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone or internet)
- For borrowers with tipped employees, additional wages paid to those employees
NEW covered costs as of Dec. 27, 2020:
- operations (software, cloud computing and other human resources and accounting needs)
- property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance
- supplier costs and investments in facility modifications
- personal protective equipment to operate safely
Borrowers may elect to calculate eligible costs in an 8-week or 24-week coverage period. The coverage period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender should disburse the loan no later than 10 calendar days from the date of loan approval.
Costs incurred during the covered period, but paid after the period are eligible for forgiveness. Similarly, costs incurred before the covered period, but paid during the period are also eligible.
Alternative Payroll Coverage Period
An employer may elect to use the Alternative Payroll Covered Period to align with its biweekly or more frequent payroll schedule. The alternative period only applies to payroll costs, not nonpayroll costs such as rent. The covered period begins on the date the lender disburses the loan and nonpayroll costs must be paid or incurred during the covered period to be eligible.
The Small Business Administration released a frequently asked questions guidance document as its interpretation of the CARES Act, the Flexibility Act and the Paycheck Protection Program Interim Final Rules.
APPLY FOR LOAN FORGIVENESS
The U.S. Small Business Administration has released a new EZ Loan Forgiveness Application and revised full forgiveness applications to support more small businesses by making the Paycheck Protection Program more borrower-friendly.
Borrowers with loans of $150,000 or less may used the simplified application.