March 1, 2021

Volume XI, Number 60

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March 01, 2021

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PPP Update: New Round with Some New Rules

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law as part of the Consolidated Appropriations Act, 2021 (the Act). The Act reopens the Paycheck Protection Program (PPP) for businesses seeking a PPP loan for the first time (a First Draw PPP Loan) and permits eligible businesses that received a First Draw PPP Loan to apply for another PPP loan (a Second Draw PPP Loan). In addition, the Act implements some important modifications to the PPP, including additional expenses for which PPP loan proceeds may be used, modifications to the covered period, and clarification regarding how PPP loans will be treated for federal income tax purposes.  Under the Act, the PPP will remain open until March 31, 2021, or until the new funding has been exhausted. Set forth below is a high-level overview of some key takeaways under the Act.

KEY TAKEAWAYS

  • Eligibility – First Draw PPP Loans: The Act did not change the general eligibility criteria for First Draw PPP Loans; applicants must still satisfy the requirements set forth in the CARES Act. However, it has been clarified that publicly-traded companies and businesses that are “permanently closed” are prohibited from applying for First Draw PPP Loans. For a discussion regarding eligibility requirements for First Draw PPP Loans, please see our article addressing that topic here.

  • Eligibility – Second Draw PPP Loans: Businesses are eligible to receive a Second Draw PPP Loan if: (a) they can demonstrate that there was a 25 percent reduction from gross receipts in any quarter during 2020 when compared to the same quarter in 2019; (b) they do not employ more than 300 employees; and (c) they have used or will use the full amount of their First Draw PPP Loan on or before the expected distribution date of the Second Draw PPP Loan. 

  • Terms and Conditions – Second Draw PPP Loans: Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans (e.g., no collateral required; 1 percent interest rate on any loan proceeds that are not forgiven; and a five-year maturity date for any portion of the loan not forgiven). As with First Draw PPP Loans, the loan amount for Second Draw PPP Loans will be calculated by multiplying the borrower’s average monthly payroll costs by 2.5; [1] however, Second Draw PPP Loans are subject to a $2 million cap (as opposed to First Draw PPP Loans, which have a $10 million cap). 

  • Covered Period: The Act redefined the “covered period,” which is the period during which PPP loan proceeds must be spent on eligible expenses in order to be eligible for forgiveness. Prior to the Act, the “covered period” for forgiveness was the 24-week period starting on the date the borrower received the PPP loan proceeds, unless the PPP loan was made before June 5, 2020, in which case the borrower could elect to utilize either a 24-week covered period or the original 8-week covered period. Under the Act, borrowers may elect a covered period that ends on any date that is between 8 and 24 weeks after the day the borrower received the PPP loan proceeds.  

  • Additional Eligible Expenses: Prior to the Act, PPP loan proceeds that were used for payroll, rent, mortgage interest, utilities and interest on certain other debt obligations were eligible for forgiveness. The Act expands eligible (and, therefore, forgivable) expenses to include (a) personal protective equipment expenses; (b) certain operating expenses related to business software or cloud computing services; (c) property damage costs related to vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation; and (d) certain supplier costs. Although these four additional categories of eligible expenses are also eligible for forgiveness, borrowers are still required to use at least 60 percent of PPP loan proceeds for covered payroll costs. 

  • Deductibility of Forgiven PPP Loans: The Act clarifies that borrowers may exclude PPP loan proceeds from taxable income and deduct expenses paid with such proceeds, which is a change to the prior guidance issued by the IRS.

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Copyright © 2020 Robinson & Cole LLP. All rights reserved.National Law Review, Volume XI, Number 27
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Michael F. Maglio Partner Finance + Public Finance  Commercial and Industrial Lending
Partner

Michael Maglio's practice is concentrated in the areas of commercial and corporate finance, asset-based lending, and other secured and unsecured lending. He is a member of the firm’s Business Transactions, Bankruptcy + Reorganizations, and Sustainability Groups.

Financing Transactions

Mike represents institutional lenders and borrowers in structuring, negotiating, and documenting complex single- and multiple-lender, single- and multiple-obligor, and single- and multi-tiered financing transactions. His experience includes the representation of senior lenders...

860-275-8274
Endicott Peabody IV Kit Counsel Business Transactions
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Endicott Peabody IV (Kit) is a member of the firm’s Business Transactions Group. Kit has more than 16 years’ experience advising clients on transactional and general corporate matters. This includes significant work representing public and private companies across industries, private equity firms, commercial banks, other major lending institutions, and real estate developers in structuring, documenting and negotiating, complex M&A transactions; senior and junior lending transactions (secured, unsecured and multi-tranche financing); syndicated financing transactions; and problem and...

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Taylor A. Shea Corporate & Transactional Law Robinson & Cole Hartford, CT
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Taylor Shea represents privately and publicly held companies in all aspects of corporate and transactional law, including commercial finance transactions, private equity and venture capital transactions, mergers and acquisitions, and general corporate and commercial matters. She is a member of the firm's Business Transactions Group and its Manufacturing Industry Team. 

Commercial and Corporate Finance

Taylor has a robust commercial and corporate finance practice, representing clients in all aspects of secured and unsecured bank, mezzanine and other senior...

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Barrett P. Wilson-Murphy Business Transactions Attorney Robinson & Cole Boston, MA
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Barrett Wilson-Murphy advises clients on legal matters relating to middle market domestic and international financings and restructuring transactions. He represents financial institutions, funds, finance companies and other providers of capital in various commercial loan transactions and in acquisition and private equity transactions. Barrett has experience working with clients with respect to mergers and acquisitions, corporate governance and compliance matters. He is a member of the firm’s Business Transactions Group. 

Business Transactions

Barrett counsels clients on a...

617.557.5974
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