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Updated as of January 20, 2021
The highly anticipated Consolidated Appropriations Act was passed by Congress and signed into law, bringing back the popular Paycheck Protection Program (PPP) in addition to other COVID-relief initiatives for small businesses.
We’ve provided a summary of the key provisions below to help you understand the benefits for your clients that are included in the relief package. We’ve also created a Second Draw PPP Checklist as a quick and clear reference. This page will be updated with new information as we receive it.
Second Draw Paycheck Protection Program loans
The Act made an additional $284 billion in Paycheck Protection Program (PPP) funding available to small businesses struggling with revenue losses and temporary closures due to COVID-19. The good news? Both business owners that received a PPP loan from the first round AND new PPP borrowers are eligible for funds.
The Second Draw PPP program has some key updates from the original launched last April. Notably, businesses applying for a second PPP loan must be able to demonstrate a 25% reduction in revenue when comparing 2020 figures to 2019.
The program still calls for businesses to be able to borrow up to 2.5x of their average monthly payroll, but limits the maximum loan amount to $2 million. In addition, accommodation and food service businesses–two industries hit particularly hard by COVID–can apply for up to 3.5x of their average monthly payroll.
You can also view full details, terms and eligibility for the Second Draw program.
Loan forgiveness updates
The Act simplifies the forgiveness application process for PPP loans under $150,000 as follows:
- Businesses will receive forgiveness if they sign and submit a one-page certification to their PPP lender that includes a description of:
- The number of employees they were able to retain because of the covered loan
- The estimated total amount of the loan spent on payroll costs
- The total loan amount
- Businesses must also attest that they accurately provided the required certification and complied with PPP loan requirements.
- Additionally, businesses must retain relevant records related to employment for four years and other records for three years.
Notably, the Act repeals the section of the CARES Act that required PPP borrowers to deduct the amount of their Economic Injury Disaster Loan (EIDL) from their PPP forgiveness amount. As such, if businesses received a PPP loan and an EIDL advance, they do not need to subtract the amount of the advance when applying for PPP forgiveness.
Additional eligible expenses
The Act also expands the type of expenses that can be forgiven, allowing greater flexibility for small businesses. The following expenses are now allowable and forgivable uses for PPP funds:
- Covered operations: Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier: Payments to a supplier pursuant to a contract, purchase order, or order for goods that were in effect prior to receiving the PPP loan that are essential to their operations when the payments were made. Supplier costs for perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure: Personal protective equipment and costs that business owners incurred to help their business comply with Federal, State, or local beginning on March 1, 2020.
Small business debt relief program
The Act extends the small business debt relief program originally established by the CARES Act. This means that if your clients have an SBA 7(a), 504 or Microloan, they’ll receive the following benefits:
- An additional two months of principal and interest payments starting in February 2021. These payments will be capped at $9,000 per borrower per month.
- After the two-month period, certain borrowers will receive an additional three months of principal and interest payments, also capped at $9,000 per borrower per month. These borrowers include:
- Borrowers with SBA Microloans or 7(a) Community Advantage loans
- Borrowers with any 7(a) or 504 loan in the hardest-hit sectors, (measured by the severity of sector-wide job losses since the start of the pandemic). These include:
- Accommodation and food services (NAICS code 72)
- Arts, entertainment, and recreation (71)
- Educational services (61)
- Mining and logging (213)
- Apparel (315)
- Clothing and clothing accessory stores (448)
- Sporting goods, hobby, book, and music stores (451)
- Air transportation (481)
- Transit and ground passenger transportation (485)
- Scenic and sightseeing transportation (487)
- Publishing industries, except Internet (511)
- Motion picture and sound recording industries (512)
- Broadcasting, except Internet (515)
- Rental and leasing services (532)
- Personal and laundry services (812)
The SBA will also provide principal and interest payments on the first three months of new loans approved between February 1 and September 30, 2021. These monthly payments are also capped at $9,000 per month.
For comprehensive details on the debt relief program please visit the SBA’s complete Procedural Notice.
Tax treatment
The Act designates all payments on principal and interest made by SBA through the small business debt relief programs as non-taxable income. This applies retroactively to any payment made as part of this program, and for all new payments as described in the section above.
A Reminder About Loan Modifications
Prudent Lenders is a lender service provider (LSP), which means we’re here to help financial institutions like yours implement and manage SBA loan programs. We have a common saying at Prudent Lenders: You as a lender, are our client. We exist to help you serve your clients—small business owners. We are still processing COVID-19 related loan modifications for your borrowers. For additional information about this process, please visit our Lender’s Guide to COVID-19-Related Loan Modifications.
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