The Department of Treasury and the Small Business Administration have released new updated applications for the Paycheck Protection Program (“First Draw”) loan as well as for the new (“Second Draw”) loan. The new applications reflect the changes from the recently enacted Consolidated Appropriations Act, 2021. The SBA has announced that they will begin accepting applications this week. The deadline for both loans is March 31, 2021. Here is what you need to know about changes made to the Paycheck Protection Program (PPP).
Overview of the Paycheck Protection Program
The PPP program provides eligible businesses with a loan that is 100% forgivable if the proceeds are used for certain costs with at least 60% used for payroll costs. In general, eligible businesses can request a maximum loan amount of 2.5 times their monthly average payroll costs with a cap of $10 million and eligible self-employed individuals can request a maximum loan amount equal to 2.5 times their Schedule C monthly net profit with a cap of $20,833.
Changes to the Paycheck Protection Program
1. Deductions are allowed for expenses paid with the proceeds of a PPP loan that is forgiven and the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness
2. New borrowers can use 2019 or 2020 for purposes of calculating their maximum loan amount
3. In addition to payroll, rent, mortgage interest and utility expenses, PPP loans can now be used for:
a. Operations expenditures – software, cloud computing, other HR/accounting
b. Property damage costs – costs related to 2020 public disturbances not covered by insurance or other compensation
c. Supplier costs – expenditures to a supplier that are essential to the recipient’s current operations
d. Worker protection expenditures – PPE and costs to comply with COVID-19 federal health and safety guidelines
4. Borrowers can now elect a covered period ending at any point between 8 and 24 weeks after origination
5. Eligible entities now include 501(c)(6) organizations (certain exceptions may apply if heavily involved in lobbying), destination marketing organizations, and certain news organizations.
6. If a borrower received an EIDL advance, up to $10,000, this amount will no longer be deducted from their PPP loan forgiveness amount
7. Under these certain circumstances, borrowers may reapply or request an increase in their PPP loan amount:
a. If a borrower returned all of a PPP loan, the borrower may reapply for a PPP loan in an amount the borrower is eligible for under current PPP rules.
b. If a borrower returned part of a PPP loan, the borrower may reapply for an amount equal to the difference between the amount retained and the amount previously approved.
c. If a borrower did not accept the full amount of a PPP loan for which it was approved, the borrower may request an increase in the amount of the PPP loan up to the amount previously approved.
d. If a partnership received a PPP loan that did not include any compensation for its partners, they can request that their original PPP loan amount be increased to include appropriate partner compensation
8. A new simplified application process will be created for loans under $150,000
9. Certain small and harder-hit businesses may be able to take out a 2nd PPP loan with the same general loan terms as their original PPP loan (see below)
Paycheck Protection Program Second Draw
Second Draw Loan Eligibility
A borrower is generally eligible for a Second Draw PPP Loan if the borrower:
1. Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
2. Has no more than 300 employees; and
3. Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
Second Draw Maximum Loan
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5 times their average monthly 2019 or 2020 payroll costs up to $2 million.
Second Draw Loan Terms of Forgiveness
Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:
1. Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan;
2. The loan proceeds are spent on payroll costs and other eligible expenses; and
3. At least 60 percent of the proceeds are spent on payroll costs.
Updated application forms for both the “First Draw” and “Second Draw” PPP loans can be found on the SBA website:
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As always, Lanigan, Ryan, Malcolm & Doyle will continue to monitor the evolving business landscape and add updates to our COVID-19 resource center as they become available. As an “essential” business in the state of Maryland, we will continue to work for clients to meet upcoming deadlines, while emphasizing the safety of both our clients and our team. Please know that your Lanigan, Ryan team members are always available for questions.