[UPDATED ON 03/30/2021] On March 30, 2021 the Small Business Administration (SBA) announced that the application deadline for the Paycheck Protection Program (PPP) has been extended from March 31, 2021 to May 31, 2021 (see SBA webpage).
On January 19, 2021, the Small Business Administration (“SBA”) reopened the Paycheck Protection Program (“PPP”) to all participating PPP lenders filing loan applications for eligible borrowers under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Economic Aid Act”), which is part of the Consolidated Appropriations Act, enacted on December 27, 2020. PPP is designed to provide small businesses that are affected by the coronavirus pandemic with cash support. For overview of the original PPP in 2020, please click HERE.
Please also check the News about the Economic Injury Disaster Loan (EIDL) on our website.
1. Loan Types: First Draw PPP Loans and Second Draw PPP Loans
The new PPP consists of two sets of loans: first draw loans and second draw loans, depending on the eligibility of applicants as follows:
First Draw PPP Loans
- New PPP applicants
- Reapplying PPP – If borrowers:
- Returned all of a PPP loan: Borrowers may reapply for full eligible amount under current PPP rules.
- Partially returned a PPP loan: Borrowers may reapply for an amount equal to the difference between the amount retained and the amount previously approved.
- Did not accept the full amount of a PPP loan for which it was approved: Borrowers may request an increase in the amount of the PPP loan up to the amount previously approved.
Second Draw PPP Loans – If borrowers:
- Previously received a PPP loan;
- Have used, or will use, the full amount of the initial PPP loan on or before the expected date of disbursement of the Second Draw Loan;
- Employs not more than 300 employees* (affiliation** waiver may apply to some businesses – see below for more details); and
- Experienced a revenue reduction of 25% or greater in a quarter of 2020 compared to the same quarter of 2019 (e.g., 2Q 2019 and 2Q 2020).
- If in business only in the fourth quarter in 2019: An applicant may compare the fourth quarter of 2019 with any quarter of 2020.
- If not in business in 2019: An applicant may compare the first quarter of 2020 with any other quarter of 2020.
* The number of employees includes individuals employed on a full-time, part-time, or other basis (e.g., if there are 20 full-time employees and 5 part-time employees each of whom works 10 hours per week, the number of employees is 25). However, the number of employees for the purpose of determining the eligibility of loan forgiveness is based on a full-time equivalent.
** “Affiliates” mainly include a parent company, subsidiaries, and sister companies and are determined based on their control over the other. Generally, a business concern, domestic or foreign, that has more than 50% ownership (or vice versa) is considered an affiliate. See “Affiliate” in the SBA’s Glossary of Business Financial Terms and 13 CFR 121.301(f).
2. Eligible Recipient (together with any affiliates, unless exempt or waved)
- Independent contractors, eligible self-employed individuals, and sole proprietors
- Small business concerns:
- Under the revenue-based size standard pursuant to 13 C.F.R. 121.201. The SBA provides a table of small business size standards on its webpage. ;Please see the SBA’s ;Size Standards Tool (enter (1) NAICS code and (2) annual gross receipts or employee number) or the Table of Small Business Size Standards; or
- Under the SBA alternative size standard (i.e., together with any affiliates, (i) has a maximum tangible net worth of not more than $15 million, and (ii) the average net income after federal income taxes (excluding any carry-over losses) for the two full fiscal years before the date of application is not more than $5 million)
- The following entities with no more than the greater of (i) 500 employees (for the Second Draw PPP Loans, no more than 300 employees) or, (ii) if applicable, the size standard in number of employees under 13 C.F.R. 121.201:
- Business concerns
- Tax-exempt nonprofit organizations under Section 501(c)(3) of the Internal Revenue Code (IRC)
- Tax-exempt veterans organizations under Section 501(c)(19) of the IRC
- Tribal business concerns under Section 31(b)(2)(C) of the Small Business Act
- The following entities with no more than 300 employees:
- Housing cooperatives
- Eligible section 501(c)(6) organizations if:
- Receipts from lobbying activities do not exceed 15% of the total receipts;
- Lobbying activities do not comprise more than 15% of the total activities; and
- Cost of the lobbying activities did not exceed $1 million during the most recent tax year that ended prior to February 15, 2020.
- Eligible destination marketing organizations
- The following news or broadcasting entities:
- News organizations, with employees no more than 500 employees per location (for the Second Draw PPP Loans, no more than 300 employees) (or, if applicable, the size standard in number of employees under 13 C.F.R. 121.201 – see above), majority owned or controlled by a business concerns that is assigned a NAICS code 511110 (newspaper publishers) or 5151 (newspaper, periodical, book, and directory publishers)
- Nonprofit public broadcasting entities with a trade or business under NAICS code 5151
- Other types of entity specifically provided for by PPP rules, including (i) hospitals (even though owned by a state or local government if they receives less than 50% of its funding from state or local government sources, exclusive of Medicaid), (ii) businesses that receive revenue from legal gaming, (iii) (a) electric cooperatives and (b) telephone cooperatives, both of which are exempt from federal income taxation under Section 501(c)(12) of the IRC, and (iv) housing cooperatives, as defined in Section 216(b) of the IRC, that employ no more than 300 employees.
EXCEPTION – The affiliation rules do not apply to certain entities, including:
- Hotels, restaurants, and other businesses assigned a NAICS code beginning with 72
- Franchises that are assigned a franchise identifier by the SBA. See SBA Franchise Directory)
- Business concerns that receive financial assistance from a company licensed under Section 301 of the Small Business Investment Act
- Business concerns with no more than (i) 500 employees per physical location (for the Second Draw PPP Loans, no more than 300 employees) or the size standard under the applicable NAICS code, and (ii) majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151; and
- Nonprofit organizations that are assigned a NAICS code beginning with 5151.
- Religious organizations
3. Ineligible Businesses, Organizations, and Individuals (Examples)
- Those engaging in any illegal activities
- Household employers (e.g., employing nannies or housekeepers)
- Those currently delinquent, or defaulted in the last seven years, on a loan from SBA or any other federal agency and which caused a loss to the government
- Those not in operation on February 15, 2020
- Recipients of a grant for shuttered venue operators under Section 324 of the Economic Aid Act
- Issuers of securities listed on a registered national securities exchange under Section 6 of the Securities Exchange Act of 1934
- Entities in which the President, the Vice President, the head of an Executive department, or a Member of Congress, or the spouse of such person owns, controls, or holds at least 20% of any class of equity (applicable to loans made on and after December 27, 2020)
- Businesses that have permanently closed
- Debtors in a bankruptcy proceeding (If an applicant or the owner of the applicant becomes the debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, the applicant must notify the lender and request cancellation of the application.)
- Hedge funds and private equity firms
Prohibited Borrowers of the Second Draw PPP Loans (in addition to the above)
- Business concerns or entities primarily engaged in political or lobbying activities
- Business concerns or entities (i) organized under the laws of China or Hong Kong, or that have significant operations in China or Hong Kong, own or hold, directly or indirectly, not less than 20% of the economic interest of the business concern or entity; or (ii) that retain, as a member of the board of directors of the business concern, a person who is a resident of China.
- Persons required to submit a registration statement under Section 2 of the Foreign Agents Registration Act of 1938 (22 U.S.C. 612)
4. Other Requirements/Prerequisites (Updated on February 24, 2021)
- An applicant was in operation on February 15, 2020. Seasonal businesses will be considered to have been in operation as of February 15, 2020 if the business was in operation for any 12-week period between February 15, 2019 and February 15, 2020.
- An applicant either had W-2 employees or 1099-MISC independent contractors, or was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees.
- The uncertainty of current economic conditions due to the coronavirus pandemic is creating a necessity for financial support for the applicant’s ongoing operations.
- An applicant has not and will not receive another PPP loan of the same type (e.g., an applicant cannot receive two separate Second Draw PPP Loans).
- [NOT REQUIRED] Being unable to obtain credit elsewhere is not a requirement for the PPP loan.
- Sole proprietors, independent contractors, and self-employed individuals will be allowed to receive more financial support by revising the PPP’s funding formula;
- An exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions will be eliminated;
- Restrictions on small business owners who made student loan payments will be eliminated as a disqualifier to participating in the PPP; and
- The SBA will ensure access for non-citizen small business owners who are lawful U.S. residents by clarifying that they may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP.
5. Allowable Uses: The proceeds of the PPP loan may be used for the following:
- Payroll costs*
- Mortgage interest payments (excluding prepayments or principal payments)
- Interest on any other debt obligations incurred before February 15, 2020
- Refinancing an EIDL loan made between January 31 and April 3, 2020 (not applicable to the Second Draw PPP Loans)
- Operations expenditures for business software or cloud computing service that facilitates business operations, product/service delivery, processing/payment/tracking of payroll expenses, sales/billing functions, accounting/tracking of supplies, inventory, records, and expenses
- Cost for property damage and vandalism or looting due to public disturbances in 2020 that was not covered by insurance or other compensation
- Supplier costs made by a borrower to a supplier for the supply of goods that are:
- Essential to the operations of the borrower; and
- Made pursuant to a contract, order, or purchase order:
- Before the covered period of the loan (“covered period” is the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement) ; or
- If goods are perishable, before or during the covered period of the loan
- Worker protection expenditures (i.e., expenditures to adapt the business activities to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, from March 1, 2020 to the date on which the national emergency with respect to the COVID–19 expires. E.g., air or air pressure ventilation or filtration system, a physical barrier such as a sneeze guard)
* Payroll costs include / exclude the following items:
- Salaries, wages, commissions, or similar compensation
- Cash tips or equivalent
- Payments for vacations, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payments for group health care benefits, including insurance premiums
- Payments of retirement benefits
- Payments of State or local taxes assessed on employee compensation
- Compensation of individual employees in excess of an annual salary of $100,000
- Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code
- Compensation of an employee whose principal place of residence is outside of the US
- Sick leave wages under § 7001 of the Families First Coronavirus Response Act
- Family leave wages under § 7003 of the Families First Coronavirus Response Act
6. Loan Amount, Interest, Loan Term
- Maximum loan amount – The lesser of:
- First Draw PPP Loans: $10 million; Second Draw PPP Loans: $2 million; or
- Borrower’s average total monthly payroll costs* multiplied by 2.5 (Exception – Second Draw PPP Loans: Borrowers with NAICS code beginning with 72 (e.g., hotels and restaurants): multiplied by 3.5.)
- If refinanced, any outstanding amount of Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 excluding any advanced amount; however, this does not apply to the Second Draw PPP Loans.
- Businesses that are part of a single corporate group (i.e., businesses majority owned by a common parent, directly or indirectly):
- First Draw PPP Loans: no more than $20 million in aggregate
- Second Draw PPP Loans: no more than $4 million in aggregate
- Interest: 1%
- Term: 5 years
- Guarantee percentage: 100% by the SBA
- No personal guarantee or collateral requirement
*How to calculate average monthly payroll costs
- An applicant may use the average monthly payroll for 2019 or 2020.
- Alternatively, an applicant may use the precise 1-year period before the loan is made (except self-employers, sole proprietors, and independent contractors)
- Seasonal employers must use their average total monthly payments for payroll for any 12-week period selected by the seasonal employer between February 15, 2019 and February 15, 2020.
7. Application Deadline: May 31, 2021 (Updated on March 30, 2021)
8. How to Apply
- PPP loan applications are accepted through lenders with delegated authority from the SBA (e.g., banks and credit unions).
- Details in how to apply may vary at each lender. (For example, a certain lender accepts applications only online.)
- Submit SBA Form along with supporting documentation to a PPP participating lender:
- The necessary information/documentation for a PPP application is also available on the above forms.
9. Supporting Documents – for 2019 or 2020, whichever used to calculate loan amount:
- Form 941 (Employer’s Quarterly Federal Tax Return)
- State quarterly wage unemployment insurance tax reporting forms, along with evidence of any retirement and group health, life, disability, vision and dental insurance contributions
- Payroll statement from the pay period covering February 15, 2020
- Form 1040 (U.S. Individual Income Tax Return), Schedule C (Profit or Loss from Business)
- If no employees, the following documents need to be submitted instead of the first three documents mentioned above:
- Form 1099-MISC, invoice, bank statement, or book of record to prove self-employment
- Invoice, bank statement, or book of record to prove operation on February 15, 2020
- Form 1065 (U.S. Return of Partnership Income), including K-1s (Partner’s Share of Income, Deductions, Credits, etc.)
- If no employees, the following documents need to be submitted instead of the first three documents mentioned above:
- Invoice, bank statement, or book of record to prove operation on February 15, 2020
- Greater than $150,000: Documentation showing a revenue reduction of 25% or greater in 2020 relative to 2019. E.g., annual tax forms, quarterly financial statements, or bank statements
- $150,000 or Less: No documentation showing a revenue reduction is required at the time of submission of the loan application but at the time of the application for loan forgiveness. If a borrower does not submit an application for loan forgiveness, such documentation must be provided upon SBA’s request.
Second Draw PPP Loans
No additional documentation to substantiate payroll costs will be required if the following apply; provided however, the lender may request additional documentation if it would be useful in conducting the lender’s good-faith review of the borrower’s loan amount calculation.
- An applicant used 2019 figures to determine its First Draw Loan amount;
- An applicant used 2019 figures to determine its Second Draw Loan amount (instead of 2020); and
- The lender for the Second Draw Loan is the same as the lender for the First Draw Loan.
10. Loan Repayment and Forgiveness
- A borrower does not need to make any payments of principal or interest before SBA remits the loan forgiveness amount (or notifies that no loan forgiveness is allowed), if the borrower submits to its lender a loan forgiveness application within 10 months after the end of the loan forgiveness covered period (i.e., beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement).
- Interest continues to accrue during the deferment period.
- If a borrower does not submit a loan forgiveness application within 10 months after the loan forgiveness covered period, the borrower must begin paying principal and interest after that period.
- To receive full loan forgiveness, at least 60% of the loan proceeds must be used for payroll costs.
- Borrowers that received a loan of $150,000 or less do not, at the time of its application for loan forgiveness, need to submit any documentation in addition to the certification and information required by Section 7A(l)(1)(A) of the Small Business Act (i.e., (i) the number of retained employees, (ii) the estimated amount of the loan spent on payroll costs, and (iii) the total loan value). However, they must retain relevant records to prove compliance with the PPP requirements:
- Employment records: 4 years after the submission of a loan forgiveness application
- Other records: 3 years after the submission of a loan forgiveness application
Exception – Second Draw Loan: Second Draw Loan borrowers with a principal amount of $150,000 or less are required to provide documentation of revenue reduction if such documentation was not provided at the time of the loan application
Loan Forgiveness Applications (The following three forms were revised as of January 19, 2021)
- Loan Forgiveness Application, Form 3508
- EZ Loan Forgiveness Application, Form 3508EZ – This form can be used when one of the following applies:
- A borrower is self-employed and has no employees; or
- A borrower did not reduce salaries or hourly wages by more than 25% for any employee during the covered period compared to the period between January 1, 2020 and March 31, 2020, AND if one of the following applies:
- A borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period (other than any reductions due to an inability to rehire individuals who were employees on February 15, 2020 or to hire similarly qualified employees for unfilled positions on or before December 31, 2020 (or, for a PPP loan made after December 27, 2020, before the last day of the covered period), and reductions in an employee’s hours that a borrower offered to restore and were refused); or
- A borrower was unable to operate between February 15, 2020 and the end of the covered period at the same level of business activity as before February 15, 2020 as a result of health directives related to COVID-19 issued between March 1, 2020 and December 31, 2020 (or, for a PPP loan made after December 27, 2020, before the last day of the covered period).
- S Loan Forgiveness Application, Form 3508S – This form can be used only if a borrower received a PPP loan of $150,000 or less.
11. SBA Contact Information
- Tel. 1-800-659-2955 (TTY: 1-800- 877-8339)
- Find local assistance: https://www.sba.gov/local-assistance/find/
- U.S. Small Business Administration: https://www.sba.gov/
- SBA PPP webpage: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program
- SBA Size Standards: https://www.sba.gov/federal-contracting/contracting-guide/size-standards
- 2020 Paycheck Protection Program Overview: https://baxterlawintl.com/ppploans/
- Economic Injury Disaster Loan Overview: https://baxterlawintl.com/covid19sba/
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