The Small Business Administration (SBA), in conjunction with the Treasury Department, recently issued the first round of updated guidance on the Paycheck Protection Program (PPP) in light of the passage of the new COVID-19 relief law.

The SBA issued guidance on “first-draw” PPP loans for first-time borrowers and “second-draw” PPP loans for repeat borrowers. Major changes from the old PPP rules include more flexibility for borrowers in choosing a covered period, expanded list of eligible loan expenses, and the ability to take out a second loan of up to $2 million under certain circumstances. Below you will find a summary of both guidance documents.

The Small Business Administration and Treasury Department also announced that the Paycheck Protection Program (PPP) will reopen the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make “First Draw” PPP Loans on Monday, January 11 and “Second Draw” PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter. New applications for the program have yet to be released.

BSCAI will continue to keep members updated on any new information and guidance as it becomes available. For questions, please contact Kevin McKenney at kmckenney@bscai.org.

First-Draw PPP Loans

• Application Deadline: The last day to apply for and receive a PPP loan is March 31, 2021.
• What businesses, organizations, and individuals are eligible for a new PPP Loan?:
  • A small business concern (500 or fewer employees) under the applicable revenue-based size standard established by SBA in 13 C.F.R. 121.201 for your industry or under the SBA alternative size standard
  • An independent contractor, eligible self-employed individual, or sole proprietor;
  • A housing cooperative, an eligible section 501(c)(6) organization, or an eligible destination marketing organization, that employs no more than 300 employees;
  • A business concern, a tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (IRC), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, a Tribal business concern described in section 31(b)(2)(C) of the Small Business Act, and you employ no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201;
  • News organization that is majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS 511110 or 5151, that employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for your industry) per location; AND
  • Your business had to be in operation on February 15, 2020, and either had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC or you were an eligible self-employed individual, independent contractor, or sole proprietorship with no employees.
• Maximum Loan Amount: The SBA clarified this amount will still be 2.5 times your average monthly payroll costs, up to $10 million for first-draw PPP loans. Please see pages 31-34 in the first draw guidance document on how to calculate your maximum loan amount.
• Interest Rate: 1%
• Maturity Date: 5 Years.
• Documentation: The applicant must submit Paycheck Protection Program Borrower Application Form (SBA Form 2483), or lender’s equivalent form. You must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable, payroll records, payroll tax filings, Form 1099-MISC, Schedule C or F, income and expenses from a sole proprietorship, or bank records.
• Covered Period: Your “loan forgiveness covered period” is the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement. Your lender must notify you of remittance by SBA of the loan forgiveness amount (or notify you that SBA determined that no loan forgiveness is allowed) and the date your first payment is due. Interest continues to accrue during the deferment period. If you do not submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you must begin paying principal and interest after that period.
• Loan Forgiveness Window: If you submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed).
• List of Eligible PPP Loan Expenses (60% of the loan must go toward payroll costs):
  • Payroll costs;
  • Costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
  • Mortgage interest payments (but not mortgage prepayments or principal payments);
  • Rent payments;
  • Utility payments;
  • Interest payments on any other debt obligations that were incurred before February 15, 2020;
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020;
  • Covered operations expenditures (payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses);
  • Covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
  • Covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—(A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order—(i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan); and
  • Covered worker protection expenditures: (A) operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to the COVID–19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19; (B) such expenditures may include—(i) the purchase, maintenance, or renovation of assets that create or expand—(I) a drive-through window facility; (II) an indoor, outdoor, or combined air or air pressure ventilation or filtration system; (III) a physical barrier such as a sneeze guard; (IV) an expansion of 51 additional indoor, outdoor, or combined business space; (V) an onsite or offsite health screening capability; or (VI) other assets relating to the compliance with the requirements or guidance described in subparagraph (A), as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (ii) the purchase of—(I) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation; (II) particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or (III) other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (C) such expenditures do not include residential real property or intangible property).

Second Draw PPP Loans

• Application Deadline: The last day to apply for and receive a PPP loan is March 31, 2021.
• What businesses, organizations, and individuals are eligible for a Second Draw PPP Loan?: An applicant is eligible for a Second Draw PPP Loan if it is a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a First Draw PPP Loan, veterans organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, or an eligible nonprofit news organization.
• Requirements to qualify for a second draw loan include:
  • ​Previously received a First Draw PPP loan;
  • Has used, or will use, the full amount of its First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan will be disbursed;
  • Employs not more than 300 employees, unless it satisfies the alternative criteria for businesses with a North American Industry Classification System (“NAICS”) code beginning with 72 and eligible news organizations with more than one physical location described in subsection (c)(3) or (c)(4) of this section; and
  • Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. The bill provides applicable timelines for businesses that were not in operation in Q1, Q2, and Q3, and Q4 of 2019. Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020. Full details on the 25% reduction in revenue requirement are listed on pages 21-24 of the second draw guidance document.
    • Note: For loans with a principal amount greater than $150,000, the applicant must submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements. For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act. If a borrower does not submit an application for loan forgiveness, such documentation must be provided upon SBA’s request. 
• Maximum Loan Amount: The maximum amount of a Second Draw PPP Loan is calculated as the lesser amount obtained by multiplying the average total monthly payment for payroll costs incurred or paid by the borrower during 2019 or 2020 (at the election of the borrower) by 2.5; or $2 million.
• Interest Rate: 1%
• Maturity Date: 5 Years.
• Documentation: See pages 32-34 in the second draw guidance document for a list of required documentation.
• Covered Period: Same as first draw loans.
• Loan Forgiveness Window: Same as first draw loans.
• List of Eligible PPP Loan Expenses: Same as first draw loans.