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January 11, 2021

PPP Update – Guidance Issued by SBA and Treasury

Late Wednesday the Small Business Administration and Treasury issued two interim final rules (IFRs) for guidance with the Paycheck Protection Program (PPP). The new PPP will re-open to community financial institutions starting January 11th exclusively for those making first-draw PPP loans. If you have already taken a PPP loan in the first round, you will be eligible to have a second-draw starting January 13th. The PPP will open to all participating lenders on an unspecified date soon after and will remain open through March 31st. The new PPP has $284.5 billion available with $35 billion set aside for first-time loans.

For those seeking their first loan, the maximum draw is $10 million. First-draw PPP loans are available to borrowers that were in operation on February 15, 2020 or earlier and fall under one of the following groups.

  • Business with 500 or fewer employees
  • Sole proprietor, independent contractor, or self-employed individual
  • Not-for-profit
  • Accommodation and food service operations

Applicants must submit documentation sufficient enough to establish eligibility and to demonstrate the qualifying payroll amount. This may include payroll records, tax filings, Form 1099-MISC, Form 1040, Schedule C, Profit or Loss from Business, income and expenses from a sole proprietorship, or bank records.

For those seeking a second loan, you are eligible to draw up to $2 million as long as you qualify under the following conditions:

  • 300 or fewer employees
  • The full amount of the first PPP loan has been used or will be used by the time the second PPP loan is disbursed. The first loan must have been spent on eligible expenses.
  • Subject to a revenue reduction of 25% or greater in all or part of 2020 compared with all or part of 2019. The calculation is made by comparing gross receipts to any quarter in 2020 with an applicable quarter in 2019. A borrower who was in operation for all four quarters in 2019 can submit copies of annual tax forms to show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.

The IFR clarifies that gross receipts include all revenue in whatever form received from any source including sales of products or services, interest, rents, royalties, fees, commissions, or dividends reduced by returns. First-draw PPP loans are not included in the 2020 gross receipts.

First and second-time PPP borrowers may receive a loan amount that of up to 2.5 times their average monthly payroll costs (capped at $100,000 per employee) in 2019, 2020, or the year prior to the loan. Applicants must provide a Form 941, Employer’s Quarterly Federal Tax Return and state quarterly wage unemployment insurance tax reporting forms for each quarter in 2019 or 2020 (depending on the year used to calculate the loan), or payroll records, with evidence of retirement and health insurance contributions.

Eligible costs for a PPP loan originally included, payroll, rent, covered mortgage interest, and utilities. After the passage of the new stimulus bill, these costs are now able to be included:

  • Covered worker protection and facility modification expenditures to comply with COVID-19 federal health and safety guidelines.
  • Expenditures to suppliers that are essential at the time of purchase to your current operations.
  • Covered property damage costs related to property damage and vandalism due to public disturbances in 2020 that were not covered by insurance.
  • Covered operating expenditures for payments to any business software or cloud computing service that facilitates business operations, product or service delivery, processing, payment, or tracking of payroll, HR, sales and billing, or accounting or tracking inventory, expenses, or supplies.

To be eligible for full loan forgiveness, borrowers must spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks. If you received a loan of $150,000 or less, forgiveness is eligible after certification is sent to the lender describing the number of employees you were able to maintain because of the loan, the estimated total of loan spent on payroll, and the total loan amount. The SBA will make a simplified application form by January 20th.

As part of this new stimulus bill, economic aid was set aside for new and smaller borrowers, for borrowers in low and moderate-income communities, and for small community lenders. $35 billion has been set aside for new first-draw borrowers. $15 billion and $25 billion set aside for first-draw and second-draw PPP loans for borrowers with a maximum of 10 employees or loans less than $250,000 for borrowers in low or moderate-income neighborhoods.