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New Paycheck Protection Program (PPP) Guidelines from the SBA and Treasury

The Small Business Administration and U.S. Treasury has issued guidelines for the new PPP that includes several major changes.

The guidelines for the reconstituted Paycheck Protection Program (PPP) included two interim final rules (IFRs).

The SBA also released a three-page “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns.

 Basic take-aways from the changes:

The PPP re-opens the week of Jan. 11 exclusively to community financial institutions. They are allowed to make first-draw PPP loans on starting Jan. 11 and second-draw PPP loans starting Jan. 13.

The PPP will open to all participating lenders at an unspecified date shortly thereafter and remain open through March 31.

The new PPP makes $284.5 billion available, including $35 billion for first-time loans

Major change: second draw loans

One of the biggest changes is that Congress made funding available to businesses that had previously received a PPP loan. Borrowers are eligible for a second-draw PPP loan of up to $2 million if they have:

The Interim Final Rules (IFR) define gross receipts to include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source. That includes the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Forgiven first-draw PPP loans are not included in the 2020 gross receipts.

First Draw Loans

First-draw PPP loans are available to borrowers that were in operation on Feb. 15, 2020. Eligible groups are:

Change Restricts Eligibility

The new guidelines include this change: publicly traded companies and businesses controlled, either directly or indirectly, by the president, vice president, head of executive departments, and members of Congress (or their spouses as defined by applicable common law) are not eligible for PPP loans.

PPP applicants must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable:

Maximum PPP Loan Amounts

First- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the year prior to the loan.

PPP borrowers with NAICS codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.

The maximum for a first-draw PPP loan is $10 million, the same as in the original PPP. Applicants must provide a Form 941, Employer’s Quarterly Federal Tax Return, (or other forms with similar information. Also state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (the one used to calculate the loan amount), or equivalent payroll processor records. They must document any retirement and health insurance contributions.

Eligible costs

PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs. The costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities.

The following costs are also now eligible:

PPP borrowers have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks to be eligible for forgiveness.

Simpler forgiveness

Borrowers that receive a PPP loan of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a certification that is not more than one page in length. The certification must include a description of the number of employees the borrower retained because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.

The SBA is required to create the simplified form by Jan. 20. The form may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Minority, underserved, veteran, and women-owned businesses

The Economic Aid Act provided set-asides for new and smaller borrowers, for borrowers in low- and moderate-income communities, and for community and smaller lenders. The set-asides include:

The SBA announced in a three-page guidance that it will take a number of steps to ensure increased access to the PPP for minority, underserved, veteran, and women-owned business concerns. The SBA said it will accept PPP loan applications only from community financial institutions for at least the first two days when the PPP loan portal reopens. To increase access the SBA said it would:

Who is not eligible?

The following businesses are not eligible for a loan under PPP2:

PPP2 Loan applicants must still make good faith  certification that:

Eligible entities are only entitled to one PPP2 loan.