CGA Law News & Blog

COVID-19 Update: Paycheck Protection Program – Round 2

access_time Posted on: December 28th, 2020

With the newly authorized Consolidated Appropriations Act, 2021 (the “Act”), Congress has agreed to allot $284.5 billion to the Small Business Administration (SBA) for Paycheck Protection Program (PPP) loans. In this second round, prior PPP recipients may borrow up to $2 million – a significant decrease from the $10 million maximum permitted by the CARES Act; the bill specifically allocates $35 billion to new PPP borrowers. 

New Information on Expenses 

Section 276 of Division N in the new bill provides that these expenses are now wholly deductible for those who paid business expenses with forgiven PPP funds. The new bill applies to all borrowers, including those who have already applied for loan forgiveness. Moreover, the bill has changed the existing PPP program for those who have already borrowed but not yet applied for forgiveness. Several newly eligible expenses may be utilized and forgiven, so long as these non-payroll expenses total 40% or less of all costs, including: 

  • covered operation protection and facility modification expenditures, including personal safety equipment utilized to comply with federal health and safety guidelines
  • supplier expenditures that are essential to operations, at the time the cost is covered; or made according to an executed contract, order, or purchase order that was
    • effective before the covered time period, or
    • pertaining to perishable goods, effective before or during the time period
  • covered operating expenditures, including software/cloud computing services and accounting necessities.

The remaining 60% of PPP proceeds designated for payroll must be spent during a “covered period” to qualify for forgiveness. The bill has now provided borrowers with the ability to select their covered period, so long as it lasts between 8 and 24 weeks. 

PPP Funding and Forgiveness Applications

Additionally, the Act has provided new PPP funding for qualified first-time borrowers and streamlined the forgiveness application for loans amounting to $150,000 or less. Application requirements include a one-page certification, a description of the number of employees retained due to the loan, the total loan amount, and the approximate total amount of the loan spent specifically on the payroll. Any supplemental information should not be mandated unless necessary to fulfill regulatory or statutory requirements or to authenticate revenue loss, in which an audit will be conducted to detect fraudulent activity. This simplified application must be created within 24 days of the bill’s effective date, and borrowers must maintain employment records for four years and all other records for three years. Furthermore, PPP borrowers are no longer required to deduct the Economic Injury Disaster Loan (EIDL) advance from their loan forgiveness amount. 

Details Regarding Loan Eligibility

Loan eligibility is extended to not-for-profit organizations and is also contingent upon a business showing a 25% decrease in quarterly gross receipts from the respective 2019 quarter. However, second-round recipients now face more restrictive eligibility requirements. Second-time borrowers must have used or will use the full amount of their original PPP loan and, again, have no more than 300 employees. This loan amount is determined by multiplying the average monthly 2019 payroll by 2.5. Businesses within the hospitality industry, such as restaurants, bars, hotels, and the like, can multiply their average monthly payroll by 3.5. First-time borrowers qualify if they employ no more than 500 employees, eligible for other SBA 7(a) loans; sole proprietors, independent contractors, and eligible self-employed individuals; and accommodation and foodservice operations with no more than 300 employees per location. If a borrower repaid any or all of their initial loan amount, they are eligible to reapply. 

While there are commonalities between the original and the newly enacted bill, the differences mentioned above are significant and should be considered when applying for a PPP loan moving forward. 

Jasmine Butler

If you or someone you know is in need of legal services related to those mentioned in this article, contact CGA Law Firm at 717-848-4900 or email us at [email protected] and we will direct you to the appropriate attorney.