Understanding Paycheck Protection Program (PPP)

 Below, we’ve summarized the U.S. Government’s 8-part COVID-19 relief package for small businesses. Before you read on, it goes without saying step one is talking to your accountant, local banker and lawyer to know what applies for you and how best to get after it.

Part 1: Extending and Improving the Paycheck Protection Program (PPP)

The legislation includes $284 billion for the Paycheck Protection Program and extends the program through March 31, 2021.

Here are some of the key provisions along with questions you maybe looking to answer:

 Q. If I already got a PPP loan, can I apply again?

Yes: Under the new COVID relief package, the new program provides for a second PPP loan of up to $2 million for smaller, harder-hit businesses that:

    Have no more than 300 employees.

    Demonstrate a loss of 25 percent of gross receipts in any quarter during 2020 when compared to the same quarter in 2019.

    Have used the full amount of their first PPP before a second loan is disbursed.

Q. Are more businesses eligible this time?

Yes – But before we go there… if you are a solopreneur or independent contractor you ARE eligible for PPP loans despite what the name of the program might convey. Click here to learn more about solo eligibility and here to read our guide on loan forgiveness for solopreneurs. 

In the COVID-19 relief package updates, eligibility was expanded to also include: certain local newspapers, TV and radio stations, public broadcasters, housing cooperatives, and 501(c)(6) nonprofits.

Q. How much money am I entitled to?

In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year. No loan can be greater than $2 million. Here are some of the details: 

    Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.

    New entities may receive loans of up to 2.5X of average monthly payroll costs.

    Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.

    Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.

    Waivers of affiliation rules that applied during initial PPP loans apply to a second loan.

    An eligible entity may only receive one PPP second draw loan.

    Fees are waived for both borrowers and lenders to encourage participation.

    For loans of not more than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits their loan forgiveness application and non-profit and veterans organizations may utilize gross receipts to calculate their revenue loss standard.

Q. Did they simplify the forgiveness process?

Yes –  for loans of up to $150,000 and they revised the loan processing fee tiers to incentivize lenders to make loans to underserved and underbanked businesses.

Q. Did they do anything to get money to businesses they missed last time?

Yes – they added a number of carve outs and special programs designed to get money to businesses who were underserved last time including:

    Directing the Small Business Administration (SBA) to issue guidance that prioritizes underserved communities and to add a voluntary demographic information section on the applications for initial and second PPP loans, as suggested by the SBA Inspector General. You can find a map of communities meeting these requirements found here. 

    Dedicates a $15 billion set-aside for loans issued by mission-lenders, including community development financial institutions (CDFIs), minority-depository institutions (MDIs), and SBA 504 and Microlenders, as well as another $15 billion set-aside for certain smaller depository institutions, such as credit unions and farm credit institutions.

    Creates $60 billion in borrower set-asides: $35 billion for borrowers who were unable to apply for an initial PPP loan, of which $15 billion is for smaller borrowers with up to 10 employees or loans of up to $250,000 in low-income areas; and $25 billion for second PPP loans for the same small borrower category.

    Repeals the requirement for PPP borrowers to deduct from forgiveness the amount of their EIDL grant advance.

Eligible small businesses and nonprofits seeking initial PPP and second draw loans should contact an eligible PPP lender. A list of approved lenders listed by state is available on SBA’s website here. 

Based on our research, business owners got faster turnaround and much better service by avoiding the major money center banks (Chase, BofA, Citi, Wells Fargo, etc) and going with regional / local banks, credit unions, and online providers. 

Part 2: Economic Injury Disaster Loans (EIDL) from the SBA

$20 Billion in additional targeting funding is being made available through the EIDL Advance program. The bill makes entities in low-income communities, as defined in section 45D(e) of the Internal Revenue Code (see map to determine if you are in one of these areas), that received an EIDL Advance to receive an amount equal to the difference of what the entity received under the CARES Act and $10,000.

It also provides $10,000 grants to eligible applicants in low-income communities that did not secure grants because funding had run out.

Eligible small businesses and nonprofits seeking to participate in the EIDL Advance program should contact the SBA.

Part 3: New Grant Program for Shuttered Industries

$15 Billion was set aside for the SBA to make grants to eligible live venues, independent movie theaters, and other cultural institutions that can demonstrate a revenue loss of 25 percent to address the economic effects of the COVID-19 pandemic.

The SBA may make an initial grant of up to $10 million dollars to an eligible person or entity and a supplemental grant that is equal to 50 percent of the initial grant.

These small business grants can be used to cover expenses such as payroll costs, rent, utilities, and personal protective equipment.

Two priority periods are established to ensure the hardest-hit entities have dedicated access to assistance for the first 28 days of the program, while a reserve fund is made available to ensure that entities that are ineligible for the priority periods are able to receive assistance following the two 14-day priority periods.

A set-aside of $2 billion is also reserved for entities with 50 or fewer employees. Eligible individuals or entities seeking to participate in the shuttered venue grant program should contact the SBA.

Note: This is a new program and will take time for the SBA to launch, but you should note that receiving a grant under this program makes your business ineligible for “Second Draw PPP Loans.”

Due to this being a new program, talk with your accountant, lawyers, bankers and SBA to determine which approach will serve your needs and timing best.

Part 4: Existing Debt Relief Programs Extended

If your business has an existing or new SBA new SBA 7(a), 504 and microloans, as established under the CARES Act, the legislation does start repayment of principal and interest on these loans.

However, you may be entitled to receive an additional three months of P&I, starting in February 2021, capped at $9,000 per borrower monthly.

Underserved borrowers, namely the smallest or hardest-hit, will receive an additional five months (eight total) of relief. SBA payments of P&I on the first six months of newly approved loans will resume for all loans approved between February 1 and September 30, 2021, also capped at $9,000 monthly.

Part 5: Boosting Existing SBA Core Programs

If you are already taking advantage of programs under the SBA, you may be able to take advantage of a number of enhancements they made in the legislation including:

    Making lending programs, including 7(a), Community Advantage, 504, and the Microloan program, more affordable and useful to small businesses.

    It does so by increasing the 7(a) guarantee to 90 percent, waiving borrower and lender fees on 7(a) and 504 loans, enhancing 504 refinance options, and creating an Express 504 loan program for small loans.

    For the Microloan program, the bill gives borrowers an extra two years to repay their loan, provides funding to deploy $64 million more in loans, and adds flexibility for lenders to counsel and deploy capital faster and where it is needed the most to help businesses impacted by the COVID-19 pandemic.

    Improving SBA’s entrepreneurial development and contracting programs, including extending the waiver of matching funds requirement under the Women’s Business Centers (WBCs), as well as allowing a one-year extension of participation in the 8(a) program, a federal contracting program benefiting underserved small businesses.

Part 6: Additional Funding for the Minority Business Development Agency

$25 Million of additional funding was provided to the MBDA’s Minority Business Development Centers program, including Specialty Centers, to help minority business enterprises (MBEs) respond to COVID-19, including by helping them identify and access local, State, or Federal government assistance.

Part 7: Extending and Expanding the Employee Retention Tax Credit

The legislation extends the CARES Act ERTC through June 30, 2021, expands eligibility by reducing the required gross receipts decline from 50 percent to 20 percent, and increases both the credit rate from 50 to 70 percent of qualified wages and the limit on per-employee creditable wages from $10,000/year to $10,000/quarter.

The bill also modifies the threshold for treatment as a ‘large employer’ by increasing the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees.

Small businesses with 500 or fewer employees are allowed to advance the credit at any point during the quarter based on wages paid in the same quarter in a previous year.

Employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP funds.

Part 8: Assistance Received Under Certain Programs is Not Taxable

The new COVID-19 relief package clarifies the tax treatment of small business government assistance. The legislation clarifies that small business assistance—including PPP forgiven funds, emergency EDIL grants, targeted EIDL Advances, certain loan repayment assistance, and grants for shuttered venues—are not taxable as income and that deductions are allowed for otherwise deductible expenses paid with the proceeds of this small business assistance.  

Author: The Williamson Group

Veteran Owned Small Consulting Business

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