Dec 21, 2020 -
I apologize for the length of this article but there is good news to share. The House and Senate have passed the Consolidated Appropriations Act and the President is expected to sign it. I wanted to provide a brief update of some of the provisions contained in the Consolidated Appropriations Act as they relate to PPP loans, EIDL advance and SBA loans. This email does not cover all the provisions contained in the Consolidated Appropriations Act. We will provide additional updates and information as it becomes more clearly defined. The final details and processes for implementation of the provision discussed below are subject to rule making by Treasury and implementation by the SBA through its Interim Final Rules (IFRs).
Simplified Forgiveness Application for PPP loans of $150,000 and Less.
Creates a simplified PPP loan forgiveness application for loans under $150,000 dollars whereby the borrower signs and submits a one-page certification to the lender. The form requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs. The borrower must attest they have accurately supplied the required certification, followed relevant requirements in the program, and must keep employment records for four years. The SBA must create this form within twenty-four days of enactment of the Consolidated Appropriations Act
Deductibility of Expenses Paid with PPP Loan Proceeds.
Treasury and the IRS took a position that expenses paid with forgiven PPP loan proceeds were not deductible expenses by the borrower. The Consolidated Appropriations Act clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. This applies to all PPP loans, even if the loan was already forgiven at the date this legislation is enacted. The provision provides similar treatment for Second Draw PPP loans.
EIDL Advance Reduction to Forgiveness Amount Repealed.
Repeals section 1110(e)(6) of the CARES Act, which requires PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. The SBA is required to issue rules that ensure borrowers are made whole if their EIDL was deducted from the amount of forgiveness they received.
Additional Eligible Nonpayroll Uses of PPP Loan Proceeds.
Four additional categories were added for nonpayroll costs eligible for use of the PPP loan proceeds, subject to overall limitation that 60 percent of loan must be used for payroll costs. The additional allowed expenses are:
- Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient's operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
PPP Second Draw Loans.
These "second draw" loans are targeted at hard-hit businesses that employ 300 or fewer employees and that have used or will use the full amount of their first PPP loan. An eligible entity may only receive one PPP second draw loan.
- The maximum loan under this program is $2 million, based on two and a half months of average annual payroll (three and a half months for NAICS Code 72 entities-generally hotels and restaurants). The measurement period for the payroll can either be calendar-year 2019 or the one-year period before the date the second draw loan is made.
- Borrowers must show a 25 percent decline in revenue in the first, second, or third quarter in 2020 as compared to the same quarter in 2019. If the loan application is after December 31, 2020, then a fourth quarter comparison may be used as well. There are special comparison rules for entities not in existence for all of 2019.
- The forgiveness of the second draw loans follows the rules in the first round of loans, including the various reduction provisions. Borrowers of a PPP second draw loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.
- The revised covered period definition also applies to the second draw loans. The covered period would, therefore, be any time period selected by the borrower that is more than eight weeks from the date of deposit of the loan proceeds but not greater than 24 weeks from such time.
The SBA will set aside funding for first-time PPP borrowers with 10 or fewer employees, second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have been made newly eligible by the Consolidated Appropriations Act, and second time returning PPP borrowers.
SBA Debt Relief Payments Extended.
Resumes the principal and interest payments of new and existing small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. SBA is granted the authority to continue to make principal and interest payments on existing SBA loan products (not PPP), through March 31, 2021.
- All borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive an additional three months of P&I, starting in February 2021. Going forward, those payments will be capped at $9,000 per borrower per month.
- After the three-month period described above, borrowers considered to be underserved, namely the smallest or hardest hit by the pandemic, will receive an additional five months of P&I payments, also capped at $9,000 per borrower per month. If the SBA projects that appropriations supporting the debt relief program are insufficient to fund the extensions provided, the Administrator may proportionally reduce the number of months provided in each extension.
As noted previously the rules and guidance on these programs tends to change frequently and we will provide updates as new information becomes available.