December 7, 2021

Volume XI, Number 341

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December 06, 2021

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PPP 2.0: Expanded Lending For New and Existing Borrowers

After months of stalled negotiations, Congress has passed sweeping new COVID-19 relief legislation that, among other things, revitalizes and revises the Paycheck Protection Program. The new legislation reopens the program to first time borrowers, provides greater flexibility for how borrowers may use PPP funds and also adds a mechanism by which businesses that already received a PPP loan will be able to take advantage of a new round of “second draw” funding. Notably, the new legislation reiterates and clarifies the safe harbor provision for lenders. Highlights of the legislation are as follows:

Timing

The updated lending program is expected to be in place soon, as the legislation requires that the SBA issue effectuating regulations within 10 days of enactment. Under the new law, the PPP program will be open until March 31, 2021.

Loan Flexibility

As for spending flexibility, the bill allows borrowers to now use PPP funds not only for payroll expenses, but also for payments to vendors for essential supplies, payments for worker protections like air filters and PPE, certain software and cloud computing expenses, as well as costs related to property damage resulting from public disturbances that occurred during 2020 and which are not covered by insurance.

New borrowers, as well as existing borrowers who have not yet had their loans forgiven, will be permitted to take advantage of these expansions as forgivable expenses. However, the new bill still requires that, in order to obtain complete loan forgiveness, at least 60 percent of loan proceeds be used for payroll expenses.1

Second Draw Loans

Many smaller borrowers who have already taken a PPP loan will have an opportunity to obtain additional funding. A PPP Second Draw loan up to $2 million, calculated based on 2.5 times average monthly payroll for the prior year, or 3.5 times for NAICS code 72 entities, including restaurants, will be available to eligible borrowers that:

  • Employ no more than 300 employees;
  • Have used the full amount of the first PPP loan; and
  • Had gross receipts during the first, second, third or fourth quarter of 2020 that were at least 25% less than the same quarter in 2019.

While the Second Draw program specifically includes nonprofit and religious organizations, the legislation excludes entities engaged in political or lobbying activities, think tanks, as well as businesses owned or controlled by entities in China or Hong Kong, or where a member of the borrower’s board of directors resides in China. Entities that receive a grant under the Economic Aid to Hard-Hit Small Business, Non-profits, and Venues Act are also not eligible for a PPP Second Draw loan.

Deductibility of PPP Expenses

The legislation also addresses the controversial issue of the deductibility of expenses paid for with PPP loan proceeds. Under IRS and Treasury guidance issued only last month, borrowers were not permitted to deduct PPP expenses where the loan had been forgiven or if forgiveness was expected. The new legislation makes it clear that such amounts are deductible, eliminating what many borrowers viewed as an adverse tax consequence of the PPP.

Election of Covered Period

While the original PPP utilized a “covered period” during which PPP funds were to be spent in eight weeks, which was later extended to 24 weeks by the Paycheck Protection Flexibility Act, borrowers may now select a covered period of between eight and 24 weeks. 

Ability to Request Loan Size Increase Due to Updated Regulations

Borrowers who have not yet received forgiveness for existing PPP loans and who returned amounts disbursed, or did not accept the full amount for which the borrower was approved, may reapply for a covered loan for an amount equal to the difference between the amount retained and the maximum amount available. Likewise, borrowers whose loan calculations have increased based on revised guidance will now have the ability to work with their lenders to increase their loan value.

Simplified Forgiveness Application

In a change that should significantly simplify the forgiveness process, borrowers who receive a covered loan of not more than $150,000 will be permitted to apply for forgiveness by submitting an application of no more than one page in length that includes a description of the number of employees the borrower was able to retain because of the PPP loan, the estimated amount of the loan spent on payroll costs, and the total loan amount. Borrowers must also attest that the borrower accurately provided the requested certification and complied with the PPP loan requirements.

Hold Harmless Provisions for Lenders

The new legislation provides a significant safe harbor for lenders making PPP loans, providing that no enforcement action will be taken against a lender if it relies on certifications or documentation submitted by borrowers, acts in good faith relating to loan origination or forgiveness, and follows all other relevant federal, state and local laws.  

These revisions to the Paycheck Protection Program reflect only a portion of this round of stimulus legislation, which provides other types of relief to small businesses, direct relief for individuals, relief for the healthcare and transportation industries, as well as schools, and also contains significant tax-related measures, including the extension of the Employee Retention Tax Credit.

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 1The legislation makes clear that employer-provided group insurance benefits are included in the definition of payroll costs.

 

© 2021 Bracewell LLPNational Law Review, Volume X, Number 358
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About this Author

David Shargel, commercial litigation, white collar criminal defense attorney, Bracewell Law firm
Partner

David Shargel is a senior counsel in the trial section of Bracewell's New York office. His litigation practice focuses general commercial litigation, internal investigations and white collar criminal defense. Mr. Shargel's practice also involves issues surrounding electronic discovery and data management.

Mr. Shargel has litigated complex commercial disputes involving contract, business torts, insurance coverage, technology and fraud, and has litigated disputes concerning federal and state constitutional law, including the Commerce and Due...

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Josh Zive, Legislative Regulatory Advocacy attorney, Bracewell law firm
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Josh Zive is a senior principal at Bracewell with an eclectic background in legislative and regulatory advocacy, campaign finance and ethics laws, strategic communications and issues related to international trade and economic sanctions. He works closely with associations and companies involved in legal and political controversies to craft and deliver arguments that can be successful with legal, political and public audiences. No matter the forum or the specific controversy, Josh strives to serve as trusted counsel for his clients and to provide timely and practical...

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Liam Donovan Bracewell
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Liam Donovan develops effective advocacy and communications strategies for clients on tax, infrastructure, energy and other public policy issues, and helps guide these clients through the federal legislative and regulatory process.

Liam joined Bracewell from Associated Builders and Contractors (ABC), where he served as ABC’s lead on tax, energy and fiscal legislative issues for more than six years, representing the construction industry before the House, Senate, White House and federal agencies, while providing strategic guidance on the association’s political activities. He also...

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Rachel goldman, complex commercial litigation, attorney, Bracewell law
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Rachel Goldman is an experienced litigator in both federal and state courts, at the trial and appellate levels. Her practice focuses on complex commercial matters, including claims for breach of contract, post-acquisition disputes, class actions, False Claims Act cases, insurance coverage disputes, contested bankruptcy matters, challenges under the Commerce Clause and the Supremacy Clause, government regulation, securities litigation, construction law, First Amendment and libel actions. Additionally, Rachel's tenure as in-house counsel provides a valuable perspective of...

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David Ball, Intellectual Property Attorney, Bracewell Giuliani, law firm
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David J. Ball is a partner in Bracewell's litigation practice. David has experience in the areas of intellectual property litigation (patent, copyright, trademark, trade dress, and IP theft), bankruptcy litigation, and state and federal appeals.  He also regularly represents financial services firms (international banks, regional banks, hedge funds, etc.) in complex commercial disputes.  David routinely draws on his litigation experience to counsel clients in all manner of business transactions, including risk analysis, contract formation, mergers and acquisitions, and...

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