Shearman And Sterling

Tax, Columns

Dec 30, 2020

The SBA’s Paycheck Protection Program – Congress Reopens the Paycheck Protection Program

Subscribe

Jump to...

 

THE SBA’S PAYCHECK PROTECTION PROGRAM – CONGRESS REOPENS THE PAYCHECK PROTECTION PROGRAM

On December 27, 2020 President Trump signed the Consolidated Appropriations Act, 2021 (“the Act”). The Act reopens the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) that allows businesses to apply for a loan for the first time or allows existing PPP borrowers to apply for a second loan. First-time PPP borrowers will be subject to the PPP’s original eligibility rules, and second-time PPP borrowers will be subject to the following requirements:

Eligibility

Borrowers that previously received a PPP loan may apply for a second PPP loan under the Act if they meet certain eligibility requirements, which are different than for the first PPP loan. The employee eligibility requirement is reduced from a maximum of 500 employees to a maximum of 300 employees. However, the Act provides that businesses with more than one physical location can still use the original 500 employee maximum. Therefore, businesses with one physical location must have 300 employees or less, and businesses with more than one physical location must have 500 employees or less to be eligible for a second loan.

The Act also adds two requirements to qualify for a second PPP loan. First, the borrower must have used or “will use” the full amount of its original PPP loan. Currently, the Act does not specify that the loan must be spent during the original PPP covered period, so the exact requirements for “will use” are unclear. Additionally, a business must have experienced a 25% reduction in gross receipts during one quarter in 2020 (not all, just one of them) compared with the same quarter in 2019.

Size of Loan

The maximum amount for a second-time loan is $2 million, as opposed to $10 million in the first round of PPP loans. However, the loan amount of 2.5 times the company’s payroll costs remains the same. Therefore, second-time PPP borrowers will be eligible to receive an amount equal to the lesser of 2.5 times their average monthly payroll costs or $2 million. However, second-time borrowers in the accommodation and food services industry will be eligible to receive an amount equal to the lesser of 3.5 times their average monthly payroll costs or $2 million. Additionally, the Act simplifies the calculation of payroll costs. The borrower may elect to use one of two calculations: (i) the average monthly payroll of 2019 or (ii) the average monthly payroll over the one-year period prior to the second PPP loan being made.

Available Uses

As with the first round of PPP loans, borrowers must spend at least 60% of the loan funds on payroll costs and up to 40% of the loan funds on other eligible costs over either eight or 24 weeks to receive full forgiveness of the PPP loan. However, other eligible costs are expanded to include the cost of personal protective equipment, facility modification expenditures, supplier costs, software and operations expenditures such as property damage cost due to public disturbances in 2020. The Act also simplifies the forgiveness calculation for loan proceeds spent on more than 40% of non-payroll expenses. A borrower can be forgiven the lesser of the full loan amount or the amount of the loan spent on payroll divided by 0.6.

Additionally, the Act clarifies that businesses may take tax deductions for the expenses, including payroll costs, covered by forgiven loans. The Act also provides a simplified forgiveness application process for PPP loans of $150,000 or less. These borrowers must complete a one-page certification that includes a description of the number of employees the borrower was able to retain because of the loan, the estimated amount spent on payroll costs and the total loan amount.

The Act also directs the SBA to issue rules for cases where a PPP loan recipient returned or did not accept the maximum amount of loan it was eligible for. Currently, there is no set date for when the program will reopen, and the SBA has ten days to establish regulations after the Act is signed into law. Deadlines for this round of PPP loans will be March 31, 2021.

Authors and Contributors

Alan Bickerstaff

Partner

Emerging Growth

+1 512 647 1903

+1 512 647 1903

Austin

J. Russel Denton

Partner

Emerging Growth

+1 512 647 1906

+1 512 647 1906

Austin

Brian Dillavou

Partner

Emerging Growth

+1 512 647 1905

+1 512 647 1905

Austin

Michael Dorf

Partner

Mergers & Acquisitions

+1 415 616 1246

+1 415 616 1246

+1 650 838 3640

+1 650 838 3640

San Francisco

Christopher Forrester

Partner

Capital Markets

+1 650 838 3772

+1 650 838 3772

Menlo Park

Carmelo Gordian

Partner

Emerging Growth

+1 512 647 1902

+1 512 647 1902

Austin

J. Matthew Lyons

Partner

Emerging Growth

+1 512 647 1901

+1 512 647 1901

Austin

Daniel Mitz

Partner

Mergers & Acquisitions

+1 650 838 3805

+1 650 838 3805

+1 415 616 1136

+1 415 616 1136

Menlo Park

Ashley Smith

Associate

Emerging Growth

+1 512 647 1944

+1 512 647 1944

Austin