An end-of-year pandemic relief and stimulus package was signed into law on December 27, 2020, allocating approximately $284 billion in funding for small business relief along with several changes to the Paycheck Protection Program (PPP) and created a “Second Draw” PPP for small businesses who have exhausted their initial loan.
Additionally, Congress made changes to other programs, including Economic Injury Disaster Loans (EIDL Program), the Employee Retention Tax Credit, a Venue Grant program, and SBA loan programs that will benefit small businesses. These changes impact eligibility for initial PPP loans, the loan forgiveness process, and the tax treatment of PPP loans
To promote access to capital, at first only community financial institutions were able to make First Draw PPP Loans on Monday, January 11th, and Second Draw PPP Loans on Wednesday, January 13th. The PPP will open to all participating lenders shortly thereafter. Borrowers should turn to their lenders for additional guidance.
2021 PPP Changes
Key changes include the following:
- Borrowers can set their loan covered period to be any length between 8 & 24 weeks to best meet their needs
- Loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, & worker protection expenditures
- The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations
- Greater flexibility for seasonal employees
- Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount
- Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan
Who is eligible?
Many small businesses, non-profits and independent contractors may be eligible for the new round of PPP loans. The new bill created “second draw” forgivable loans for eligible “harder hit” small businesses, certain non-profit organizations, housing cooperatives, sole proprietors, independent contractors and others with 300 or fewer employees. This means that borrowers may qualify if they already received a loan in the first round.
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
How can a business apply?
PPP loans are accepted, processed and disbursed by a network of SBA-approved lenders. They are listed by state here and through the SBA’s online lender match tool. https://www.sba.gov/funding-programs/loans/lender-match A borrower may qualify for a loan up to 2.5 times its average monthly payroll costs. Businesses in the accommodation and food services industries, such as restaurants and hotels, may receive up to 3.5 times their average monthly payroll cost.
Will loans be forgiven in this round?
Similar to first round PPP loan program, new loans may be entirely forgiven if spent for the eligible purposes (primarily payroll) during the proper time period. To obtain full forgiveness, borrowers will need to spend at least 60% of loan proceeds on payroll. Borrowers may spend up to 40% on other qualified expenses during the covered period.
In addition to rent, mortgage interest and utilities, the list of eligible non-payroll expenses has been expanded to include four new categories: Covered operations expenditures; covered property damage costs; covered supplier costs; and covered worker protection expenditures.
PPP and real estate
Real estate owners who took advantage of PPP loans must be aware of the evolving set of administrative and compliance rules around reporting and the forgiveness application to maximize forgiveness. As owners approach their lenders to discuss long-term mortgage loan restructures, bear in mind how the lender may view the PPP indebtedness and how those loans should be dealt with as part of the overall restructuring or recapitalization strategy of the borrowing entity.
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