*This article was updated on March 24, 2021 to include information on SBA's announcement of additional deferrals of EIDL loans and increased EIDL loan limits.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Stimulus Act), a subpart of the larger Consolidated Appropriations Act, 2021, was signed into law by President Trump on Dec. 27, 2020. The Stimulus Act provides much-needed changes to the original Paycheck Protection Program (PPP) and adds a second round of PPP funding with substantially different eligibility requirements, as discussed below.
PPP 1.0 Facelift
A highly anticipated portion of the Stimulus Act is Section 276 which provides tax relief and clarity to recipients of PPP loans that are forgiven. The language specifically states that “no amount of PPP funds shall be included in gross income, and no deduction (of eligible expenses) shall be denied.” This statutory change overrides the previous IRS’ interpretive guidance that caused heartache for many PPP borrowers and that many felt was not in alignment with the original intent and express language of the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
Furthermore, if a PPP borrower obtained an Economic Injury Disaster Loan (EIDL) grant, those advances were deducted from the PPP loan forgiveness amount under the prior rules. This has now been repealed, retroactively. Now, the borrower does not have to deduct that portion from its forgiveness amount. Additionally, the Stimulus Act provides that employers who receive PPP loans may still qualify for the Employer Retention Tax Credit with respect to wages that are not paid for with forgiven PPP funds.
PPP 2.0 Summary
A few additions to the PPP are: (1) a simplified forgiveness application for loans under $150,000, (2) an expanded list of eligible expenses, (3) a PPP borrower can choose a unique “covered period” as any time frame between eight and 24-weeks, and (4) the Stimulus Act provides additional support for small business in the form of a “second draw” of PPP funding.
The “second draw” of PPP funding has a different set of eligibility requirements than the PPP did when originally introduced. Under the Stimulus Act, businesses are eligible if they:
- Have less than 300 employees, or 500 employees if there is more than one physical location, or if the business fits under a size exception; and
- Demonstrate a gross receipts reduction of 25% or more for any quarter of 2020 as compared to the same quarter of 2019.1
In addition, 501(c)6 non-profits are now eligible for second draw PPP Loans and publicly-traded companies are no longer eligible.
Moreover, the maximum amount of a PPP loan has been changed. The second draw of PPP loans:
- Has increased the multiplier to determine the maximum amount of a PPP loan to 3.5 times the average 2019 monthly payroll amount, instead of 2.5 times, for NAICS code businesses beginning with 72 (accommodations and food service); and
- Limits all second draw PPP loans to no more than $2 million.
There are other more specific details and considerations to review, especially if the business has a relationship consisting of significant operations, ownership, or board leadership with the Republic of China or the Special Administrative Region of Hong Kong.
Additional Stimulus Act Benefits to Note
The Stimulus Act allows for an extension and expansion of payroll tax credits. It also provides an extension of Small Business Administration (SBA) debt relief; and a targeted expansion of the EIDL Program.
The Payroll Tax Credits were originally established under the CARES Act and were applicable through July 1, 2021. These have now been extended and expanded. Eligibility for the credit has been expanded by reducing the required quarter-over-quarter decline in gross receipts from 50% to 20%. The threshold for treatment as a "large employer" was modified by increasing the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees. The credit rate increased from 50% to 70%. The limit on per-employee creditable wages was raised from $10,000 for the year to $10,000 for each quarter.
SBA debt relief under the Stimulus Act allows for all borrowers with qualifying loans approved by the SBA prior to the CARES Act to receive an additional three months of principal and interest (P&I), starting in February 2021. Going forward, those payments will be capped at $9,000 per borrower, per month. After the three month period ends, borrowers considered to be underserved (namely the smallest or hardest-hit by the pandemic) may receive an additional five months of P&I payments, also capped at $9,000 per borrower, per month. For all SBA loans approved between Feb. 1 and Sept. 30, 2021, the SBA will make payments of P&I for the first six months of newly approved loans (also capped at $9,000 per month). On March 15, 2021, the SBA announced that it will defer repayments of EIDL loans for 24 months for loans made in 2020 and 18 months for loans made in 2021, instead of the original 12 month deferral period.
The Stimulus Act created a Targeted Expansion of the EIDL Program by providing additional $10,000 grants to eligible applicants. These applicants must: (1) be in a low-income community, (2) have suffered an economic loss of greater than 30 percent, and (3) have not more than 300 employees. In addition, the SBA announced it is increasing the maximum amount small businesses and non-profits can borrow through the EIDL program. Starting the week of April 6, 2021, the SBA will raise the loan limit from six months of economic injury with a maximum loan amount of $150,000 to up to 24 months of economic injury with a maximum loan amount of $500,000. Borrowers do not need to contact the SBA regarding increases. Rather, the SBA will contact borrowers directly via email directing borrowers on how an increase can be obtained.
For further information, please contact any member of Taft’s SBA Task Force.
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1Pursuant to the PPP Second Draw Application Form, gross receipts for for-profit entities are defined as “all revenue in whatever form received or accrued [. . .] from whatever source, including the sales of products or services, interest, dividends, rents, royalties, fees, or commissions reduced by returns or allowances” and for non-profit entities gross receipts are deemed as having the same meaning as set forth under Section 6033 of the Internal Revenue Code.