Happy New Year! As we bid farewell to 2020 (don’t let the door hit you on the way out) and enter what will hopefully be the home stretch of this pandemic, our friends in Congress issued some “light” holiday reading with passage of the Consolidated Appropriations Act, 2021.
Part of this Act includes a re-opening of the Paycheck Protection Program (PPP), with an additional $284.5 billion ear-marked to assist small businesses that continue to be hard hit by the pandemic. An initial $15 billion is being set aside for “community financial institutions” that serve minority- and women-owned businesses. First-time borrowers at these institutions could begin applying this past Monday, January 11 and existing PPP borrowers at these institutions can begin applying for a second round of funding on January 13. The PPP program will re-open to all participating lenders shortly thereafter.
Several factors determining who qualifies, the amount for which they qualify and forgiveness terms remain in place from the initial PPP program; however, a few major changes are highlighted below:
- The borrower must have no more than 300 employees (a borrower in the first round of funding could have up to 500 employees).
- The borrower must demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- If the borrower operates a business with an NAICS code beginning with 72 (typically hotels, restaurants, etc.) they may request 3.5 times their average monthly payroll as opposed to the standard 2.5 times offered to all other businesses.
- The borrower can choose any length of covered period between 8 and 24 weeks.
- The maximum amount of a second PPP loan is $2 million versus the up to $10 million allowed in the first round.
- In addition to the eligible costs covered in the first round of PPP, the second round will ALSO include operation expenditures, property damage costs, certain supplier costs and worker protection expenditures; HOWEVER, 60% of the loan still must be used on payroll costs in order to potentially receive full forgiveness.
- A borrower may submit an application for a second PPP loan even if their initial PPP loan has not yet been forgiven.
- The deadline to submit applications for a second PPP loan is March 31, 2021.
Please note that in applying for a second round of PPP funding a borrower is still certifying that an economic uncertainty exists. What this means is not clearly defined at the moment, so if you are unsure if you have this uncertainty we recommend speaking with both your DunlapSLK team member AND your lender about the reasons you are claiming. It appears there is no automatic carve out for loans under a certain amount as there was with the first round of funding.
While there may be other parameters that affect the eligibility of certain borrowers, these are the main changes affecting the second round of funding. If you did not apply for a PPP loan during the initial round in 2020, you are still eligible under this program, but there is a different set of guidelines and a separate application.
If you are interested in a second PPP draw and meet the eligibility requirements we strongly encourage you to contact your lender immediately. Some lending institutions in our area may qualify as a “community financial institution” and begin accepting second round applications immediately, and we anticipate all participating lenders will be eligible to accept applications within the next few days. If you need assistance in determining your eligibility requirements or completing the application please reach out to your DunlapSLK team member.
For borrowers with initial PPP loans of $150,000 or less. It appears that an even more simplified forgiveness application will be forthcoming toward the end of this month. Currently, a borrower with a PPP loan of less than $150,000 may file a Form 3508S, but most (if not all) banks are still requesting required documentation to support the forgiveness calculations. This more simplified application is expected to have less certifications and require that supporting documentation only be kept on hand by the borrower for four years, in the event of an audit, rather than submitted to the bank with the application. At present we are taking this with a grain of salt, but if you are a borrower under this limit and have not filed for forgiveness yet we believe it may be best to wait a few more weeks and see what this potential application looks like.
DunlapSLK is planning to offer a webinar on other highlights of the Consolidated Appropriations Act, 2021 in the very near future. Please stay tuned for further information in the coming days.
Wishing you a safe and prosperous 2021.