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Paycheck Protection Program Update: 1/11/2021

January 11, 2021

The U.S. Small Business Administration (SBA) and Treasury have issued additional guidance for the second round of Paycheck Protection Program (PPP) loans.
The guidance included two interim final rules (IFRs):

• The 82-page IFR Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260. 
• The 42-page IFR Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan. 

The PPP has reopened today, January 11th for select lenders and borrowers. The SBA and Treasury announced that initially only community financial institutions that serve minority- and women-owned businesses will be able to make loans. Specifically, these community financial institutions can begin making loans to first-time PPP borrowers today and second-time PPP borrowers on Wednesday. The closing date for the new PPP is March 31. 

Congress revived the PPP as part of the $900 billion COVID-19 relief bill that was signed into law on Dec. 27. The original PPP provided $525 billion in forgivable loans over five months before it stopped accepting applications in August. The new PPP has $284.5 billion available, including $35 billion for first-time loans and $15 billion set aside for community financial institutions. 

Key PPP updates:

• PPP borrowers can set their PPP loan’s covered period to be any length between eight and 24 weeks to best meet their business needs. To be eligible for full loan forgiveness, borrowers will have to spend no less than 60% of their PPP loan funds on payroll over the covered period. Previously, PPP borrowers had to choose an eight-week covered period or a 24-week covered period.

• PPP loans cover additional expenses eligible for loan forgiveness, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;

• The program’s eligibility is expanded to include 501(c)(6) organizations, housing cooperatives, and direct marketing organizations, among other types of organizations.

• The PPP provides greater flexibility for and a clearer definition of 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.

In general, borrowers are eligible for a second-draw PPP loan of up to $2 million, provided they have:

• 300 or fewer employees.

• Used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The IFR also clarifies that the borrower must have spent the full amount of the first PPP loan on eligible expenses.

• Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or, in a provision added in the IFR, a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.

*Resources: 
The Journal of Accountancy, Jeff Drew, 1/7/2021. 
The Journal of Accountancy, Jeff Drew, 1/8/2021. 

We will continue to keep you informed as more information is released.