Relief Act: Update for Small Businesses

The Federal relief and stimulus package was signed into law on December 27, allocating approximately $284 billion in funding for small business relief.  The Paycheck Protection Program  (PPP) reopened to ALL participating lenders beginning 1/19/21. Under the PPP, small businesses can borrow money from private lenders without collateral, personal guarantees or fees. The loans may be eligible for forgiveness if funds are used to cover certain expenses, and they provide an important lifeline to businesses that are struggling financially during the coronavirus pandemic.

This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through May 31, 2021, and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan.

Borrowers should turn to their lenders for additional guidance. 

Here are some general questions and resources:

What has changed for this round?

Key updates include:

• Borrowers can set their loan covered period to be any length between 8 & 24 weeks to best meet their needs
• Loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, & worker protection expenditures
• The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations
• Greater flexibility for seasonal employees
• Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount
• Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan

Who Can Apply?

Many small businesses, non-profits and independent contractors may be eligible for the new round of PPP loans.  

The bill created “second draw” forgivable loans for eligible “harder hit” small businesses, certain non-profit organizations, housing cooperatives, sole proprietors, independent contractors and others with 300 or fewer employees.  This means that borrowers may qualify if they already received a loan in the first round.

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

How much can be borrowed?

A borrower may qualify for a loan up to 2.5 times its average monthly payroll costs. Businesses in the accommodation and food services industries, such as restaurants and hotels, may receive up to 3.5 times their average monthly payroll cost.

Will loans be forgiven in this round?

Similar to first round PPP loan program, new loans may be entirely  forgiven if spent for the eligible purposes (primarily payroll) during the proper time period. 

To obtain full forgiveness, borrowers will need to spend at least 60% of loan proceeds on payroll. Borrowers may spend up to 40% on other qualified expenses during the covered period. 

In addition to rent, mortgage interest and utilities, the list of eligible non-payroll expenses has been expanded to include four new categories: 

• Covered operations expenditures;
• Covered property damage costs;
• Covered supplier costs;
• and Covered worker protection expenditures.