Update to PPP Loan and SBA EIDL Programs by the Consolidated Appropriations Act
On December 27, 2020, the President signed the Consolidated Appropriations Act (CCA), which provides $900 billion in new COVID-19 relief funding and renewed and expanded the Paycheck Protection Program (PPP), and the Economic Industry Disaster Loans and Grants (EIDL), and made changes to the programs, some of which are retroactive.
The CCA includes significant modifications and extensions of the PPP under the “Hard-Hit Act” including: (i) extending the original program until March 31, 2021; (ii) increasing the list of eligible borrowers and the permitted uses of PPP loans; (iii) creating a new “second draw: loan program aimed at providing addition assistance of up to $2 million to PPP borrowers that have exhausted their original PPP loan; and (iv) making significant changes to the interaction between the PPP loan pro-grams and various tax incentives provided under the Cares Act. The following is a summary of key elements from this legislation to assist you:
Economic Industry Disaster Loans and Grants
The program originally funded by the CARES Act to provide SBA loans and grants has been extended to December 31, 2021:
- Grants are available up to $10,000. Grants do not need to be repaid. See item 2 under PPP Loan Program, below, for retroactive effect on PPP loans;
- 30-year, low-interest-rate loans are available;
- No collateral required for loans of $25,000 and under;
- The SBA has the discretion to set whatever maximum loan amount that they believe is best for the program. The current maximum loan amount of $150,000 was set before Congress authorized more funds for the program. The SBA has not yet stated if they will be increasing the current maximum loan. The maximum loan amount was as high as $500,000 earlier last year;
- SBA loans can be applied for here: COVID-19 Relief – SBA;
- Most businesses with 500 or fewer employees are eligible, including not-for-profit organization;
- Unlike PPP loans, SBA loans are not eligible for forgiveness;
- The Hard-Hit Act makes a few notable changes to the EIDL program as implemented under the CARES Act (described below), but largely retains the existing terms of such program;
- Applicant Review Process. The Hard-Hit Act now provides that the SBA may approve an applicant based upon an applicant’s credit score or by using alternative methods to determine an applicant’s ability to repay. The SBA may also use information from the U.S. Department of the Treasury to confirm that the applicant is eligible to receive such a loan or that the information contained in an application for such a loan is accurate. The SBA is required to verify, not later than 21 days from an applicant’s EIDL request, whether the entity is eligible for a loan.
- Timing for Application Review. The SBA is required to verify, not later than 21 days from an applicant’s EIDL request, whether the entity is eligible for a loan under section 7(b)(2) of the Small Business Act, and if verified as eligible, provide the requested EIDL advance (up to the $10,000 cap). If an applicant is determined to be ineligible, the SBA is required to provide the applicant with notice as to the basis for such determination.
- As noted above, the Hard-Hit Act removes the offset against a PPP borrower’s forgiveness amount for EIDL advances.
PPP Loan Program Extension
PPP loans were created under the CARES Act enacted March 27, 2020. Loans were provided to eligible businesses with the opportunity for those loans to be forgiven if the funds were utilized for certain expenses and a minimum number of employees were retained. The loans were funded through local lenders. The original program closed as of August 8, 2020. The CCA provides funding for new loans and additional “second draw” loans totaling $284.5 billion for business that had received loans under the original program.
- Extended date: The program has been extended to March 31, 2021
- The amount of a PPP loan eligible for forgiveness is no longer reduced by the amount of any EIDL Grant received. Note that this is a retroactive change.
- Eligibility Changes:
- Existing eligibility rules remains unchanged included previously excluded business such as hedge funds, private equity firms and other businesses primarily engaged in lending or investment or those engaged in passive investment in real estate.
- The following organizations are added under the Hard-Hit Act of the CCA:
- 501(c)(6) Organizations (business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues) are now eligible as long they do not employ more than 300 employees, do not have a purpose of promoting political campaigns, and do not receive more than 15% of their receipts from lobbying activities.
- Broadcast News Organizations (includes Newspaper Publishers) may receive a PPP loan as long as they do not employ more than 500 employees and certify that they will use the loan proceeds to distribute locally focused emergency information.
- Housing Cooperatives are eligible if they do not employ more than 300 employees.
- Businesses in Bankruptcy are now eligible to receive PPP loans.
- No longer eligible: A business not in operation on February 15, 2020 is not eligible.
- Increases to original loans, or 2nd draws:
- The SBA must issue guidelines by January 13th, 2021 for PPP loan borrowers who have not yet received forgiveness, to request an increase to their original loan if they previously returned or declined a portion of their PPP loan.
- Under the second Draw program, the parameters for borrower eligibility are narrower than the PPP. To be eligible for a Second Draw Loan, an applicant must be a business concern, nonprofit organization, housing cooperative, veteran’s organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative that:
- Prior (Eligible) Borrower:
- has received a PPP Loan and;
- on or before the expected date on which a Second Draw Loan is disbursed, has used, or will use such PPP Loan;
- Size Test – employs not more than 300 employees;
- Gross Receipts Revenue Test – demonstrates at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
- Prior (Eligible) Borrower: