Changes to the eligibility of borrowers: Generally the eligibility criteria of the initial program remain consistent, but certain businesses have been added including:
- Certain news organizations.
- Destination marketing organizations that meet certain requirements.
- Housing cooperatives with fewer than 300 employees.
- 501(c)(6) organizations with fewer than 300 employees provided that:
- the organization derives no more than 15 percent of its receipts from lobbying activities;
- lobbying activities comprise no more than 15 percent of the organization’s total activities; and
- the cost of lobbying activities did not exceed $1 million during the most recent tax year that ended prior to February 15, 2020.
Newly ineligible entities include public companies and persons that received a grant for shuttered venue operators under the Act.
Changes to selection of covered period: Borrowers can now select a covered period that ends on any date between 8 and 24 weeks after disbursement of a PPP loan.
Changes to interest rate: The new legislation now provides for an interest rate of 100 basis points (1 percent) calculated on a non-compounding, non-adjusting basis. This change only applies to PPP loans made on or after December 27, 2020 and is only retroactive to loans made prior upon agreement between the borrower and lender.
Changes to eligible non-payroll expenses: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and subsequent guidance recognized rent, mortgage interest, and utilities as eligible non-payroll expenses. The new legislation has expanded the scope to recognize the following additional types of eligible non-payroll expenses (including with respect to PPP loans made prior to December 27, 2020, as long as such loans have not yet been forgiven):
- Business software and cloud computing services: Expenses for software or services that facilitate a wide array of business operations. Such expenses may relate to product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
- Property damage costs due to public disturbances: Costs related to vandalism or looting due to public disturbances that occurred during 2020 but not covered by insurance or otherwise.
- Supplier costs: Certain expenses relating to goods that are essential to the borrower’s operations.
- Worked protection: Any expenses implementing guidance from DHS, CDC, or OSHA, or any equivalent state or local requirement, since March 1, 2020. This includes, for example, drive-through windows, ventilation or filtration systems, physical barriers, expansion of business space, establishment of health screening capabilities, and personal protective equipment.
In addition, the new legislation confirms that group life, disability, vision, and dental insurance may be considered payroll costs.
Changes to loan forgiveness:
- Simplified loan forgiveness for PPP loans of less than $150,000: All borrowers with outstanding PPP loan amounts of less than $150,000 may submit a one-page certification attesting the number of retained employees because of the loan, the amount of related payroll costs, and that the necessary records have been retained for compliance. No further supporting documentation must be provided for loan forgiveness.
- Deduction of expenses: Borrowers may deduct ordinary business expenses paid for from the proceeds of their PPP loan, including with respect to loans made before, on or after December 27, 2020, whether or not forgiven.
- Repealed EIDL advance deductions: The CARES Act provided Economic Injury Disaster Loans (EIDL) Advances. Such EIDL Advances were previously deducted from the forgivable amount of PPP loans. The new legislation has repealed such deductions and the SBA has updated its forgiveness platform accordingly.
Introduction of the PPPSD: Certain borrowers who have exhausted their initial PPP loans may avail themselves of additional relief with a second forgivable draw loan, with generally the same loan terms as an initial draw. Key aspects of the program are highlighted below.
Eligibility: To be eligible under the PPPSD, borrowers must satisfy the following criteria:
- On or before the expected date of disbursement of the second draw loan, the borrower must have used or will use the full amount of the initial PPP loan on eligible expenses.
- The borrower must have fewer than 300 employees (however, in general, borrowers engaged in industries assigned to NAICS code 72, which include hotels and restaurants, with more than one physical location are eligible if they have no more than 300 employees at each physical location).
- The borrower must be able to demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.
Ineligible entities: Notably, PPPSD loans are not available to:
- Entities primarily involved in political and lobbying activities.
- Entities that are permanently closed.
- Certain businesses (a) 20 percent or more of whose economic interest is owned directly or indirectly by an entity organized in China or Hong Kong, (b) which have significant operations in China or Hong Kong, or (c) which retain a resident of China as a member of their board of directors.
- Registrants under the Foreign Agents Registration Act.
Loan amount calculations: The maximum amount of a PPPSD loan is generally 2.5 times the borrower’s average monthly 2019 or 2020 payroll costs, capped at $2 million, subject to certain exceptions. Borrowers in industries assigned to NAICS code 72 are eligible to receive up to 3.5 of their average monthly 2019 or 2020 payroll costs, capped at $2 million.
Client Alert 2021-024
