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Changes to PPP Program, A Second Draw, and More

As part of the new pandemic relief package, Congress has passed several changes to the Paycheck Protection Program (PPP). Congress has also made changes to other programs, including Economic Injury Disaster Loans (EIDL Program) and the Employee Retention Tax Credit.

Payroll Protection Program (PPP) Changes: Loans for first-time borrowers are again available, and Congress has created a “Second Draw” PPP for small businesses that have exhausted their initial loan.

PPP “Second Draw” Program: The brand new “Second Draw” program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan. The program will make new loans through March 31, 2021 or until the new funding is exhausted.

Companies are eligible for a Second Draw if they have exhausted their first PPP loan and AND have less than 300 employees, AND have experienced a greater than 25% reduction in gross receipts during the first, second, third, or fourth quarter in 2020 relative to the same quarter in 2019. Entities with significant ties to China are ineligible for a second draw loan.

A loan may not exceed $2 million.

New (first time) PPP Loans: For new PPP applicants, the loan process will largely remain the same with a few major changes:

The PPP program is open through March 31, 2021 or until the new funding is exhausted.

Enterprises that are a 501(c)(6), a local news media organization, or a housing cooperative may be newly eligible for a loan. A business may qualify even if it took advantage of the Employee Retention Tax Credit. Publicly traded companies are now prohibited from receiving a loan. The maximum loan amount is now $2 million.

Expanded List of Expenses Qualifying for Forgiveness: The list of expenses that PPP funds can be used for that qualify for loan forgiveness has been expanded to include operations expenses, supplier costs, and worker protection expenses. It is still the case that not more than 40% of the forgiven amount can be for non-payroll costs.The new law also provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans).

Additional Loan Forgiveness Provisions: If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant. The period for which expenses count toward loan forgiveness will begin on the date of loan origination and end on a date of your choosing that is between 8 and 24 weeks after origination. If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness.

EIDL Grants: The new law reopens the $10,000 EIDL Grant program. Priority for the full amount of the EIDL grant will be given to small businesses with less than 300 employees, located in low-income neighborhoods, who have experienced a 30% reduction in gross receipts during any 8-week period between March 2, and December 31, 2020 compared to a comparable 8-week period before March 2.

Expanded Employee Retention Tax Credit: The new law significantly expands the employee retention tax credit beginning on January 1, 2021. The new credit is 70% on $10,000 in wages per quarter (or a maximum $14,000 per employee through June 30th).

The new law also expands which employers are eligible. Eligibility now includes employers who experienced a decline in gross receipts of more than 20% in a quarter compared to the same quarter in 2019. Employers with 500 or fewer employees can now claim the credit for wages paid to employees regardless of whether the employee is providing services.

Employers can now also receive both the Employee Retention Tax Credit and a PPP loan, just not to cover the same payroll expenses. The credit expires on June 30, 2021.

SBA Loan Debt Forgiveness: The new law resumes the government payment of monthly principal and interest on small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. Borrowers with loans approved by the SBA prior to the CARES Act will receive an additional three months of payments beginning in February of 2021. Those payments will be capped at $9,000 per borrower per month.