PPP Update: Guidance for New and Existing Borrowers
On January 8, 2021, the U.S. Department of the Treasury, in connection with the Small Business Administration, announced that the Paycheck Protection Program (PPP) will reopen the week of January 11 for new borrowers and certain businesses that have already received PPP loans.
Community financial institutions may begin making PPP loans to new or “first draw” borrowers on January 11, while “second draw” borrowers can do so from these lenders beginning January 13. Thereafter, all other participating lenders may begin disbursing funds. This new wave of PPP loans will be available through March 31. Existing PPP borrowers can request to increase their first draw PPP loan amount to the extent it returned or did not accept the full amount of a PPP loan for which it was approved (First Draw Increase).
To be eligible for a second draw PPP loan, the borrower must have used all first draw PPP funds (including the amount of any First Draw Increase) for authorized purposes or be able to demonstrate that it will do so on or before the expected date of disbursement of the second draw. Further, these borrowers must have 300 or fewer employees (together with affiliates) and be able to demonstrate a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. Forgiven first-draw PPP loan amounts received in 2020 will not be included as gross receipts.
While first draw PPP loans are capped at $10 million, second draw PPP loans will be capped at $2 million. Moreover, while a single “corporate group” (i.e., businesses that are majority owned, directly or indirectly, by a common parent) can obtain up to a combined total of $20 million in first draw PPP funds, a single corporate group may only obtain up to $4 million in second draw funds.
Other key changes to this new PPP window include that borrowers can set their PPP loan “covered period” (which is the period upon disbursement that loan funds must be spent for authorized purposes to receive forgiveness) from any length between 8 and 24 weeks. Loans under the original PPP required that borrowers choose between 8 weeks or the earlier of 24 weeks or December 31, 2020.
PPP loans under the reopened program can be used on additional categories of expenses during the covered period that can ultimately be forgiven, including (1) operations expenditures (i.e., 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, and accounting), (2) property damage costs that occurred during 2020 and are not covered by insurance or other compensation, (3) supplier costs (i.e., costs of goods that are essential to the operations of the borrower), and (4) worker protection expenditures (i.e., costs incurred to comply with COVID-19 regulations or to protect workers from COVID-19).