Eligible Employers Have More Time to Apply for PPP Loans

Employers that need help covering payroll costs during the pandemic will have an additional 60 days to file a Paycheck Protection Program (PPP) application under a bill President Joe Biden signed into law on March 30.

The application period was set to close on March 31, but the PPP Extension Act of 2021 gives eligible employers until May 31 to apply.

The PPP is designed to help struggling businesses with 500 or fewer employees keep workers employed during the COVID-19 crisis by providing loans that are forgivable if certain criteria are met. The program aims to "provide a direct incentive for small businesses to keep their workers on payroll," according to the U.S. Small Business Administration (SBA), which oversees the program.

Employers should note that the American Rescue Plan Act (ARPA), which was signed into law on March 11, added $7.25 billion to the PPP and expanded the program to cover more nonprofits and digital media companies.

Michael Mahoney, an attorney with Ogletree Deakins in Morristown, N.J., said the intent behind ARPA is to expand eligibility and enable access to loans for businesses that continue to be severely impacted by the COVID-19 pandemic.

ARPA "also affords some recipients of Shuttered Venue Operator [SVO] grants eligibility for PPP loans, and on a more technical note, makes changes to payroll cost exclusions," explained William Eck and Stanley Jutkowitz, attorneys with Seyfarth Shaw in Washington, D.C.

Expanded Coverage

"The American Rescue Plan Act expands the types of tax-exempt organizations eligible for PPP loans," Eck and Jutkowitz noted. Under the act, all types of tax-exempt organizations are eligible for PPP loans, except certain social-welfare organizations, such as homeowners' associations. Tax-exempt organizations are subject to size and lobbying limitations. Depending on the organization type, the size limit is 300 or 500 employees per physical location. ARPA also extended eligibility for PPP loans to certain internet news publishers.

The act revised prior legislation to allow businesses that receive a PPP loan after Dec. 27, 2020, to apply for an SVO grant if conditions are met. SVO grants are also administered by the SBA and apply to small theaters, museums, live venue operators and some additional businesses.

"Specifically, if a PPP borrower receives a first draw or second draw PPP loan after Dec. 27, 2020, the amount of any subsequently approved SVO grant will be reduced by the amount of the first draw or second draw PPP loan," Eck and Jutkowitz said. "If a borrower receives both a first draw and second draw PPP loan after Dec. 27, 2020, the amount of any subsequently approved SVO grant will be reduced by the combined amount of both PPP loans."

Mahoney noted that ARPA focused on providing funding to smaller businesses that had not previously received relief. "This includes the lifting of an eligibility bar on small-business owners convicted of non-fraud felonies."

Loan Eligibility

Most businesses are eligible for a first loan if they employ 500 or fewer employees. However, businesses that employ more than 500 workers may be eligible if they meet the SBA's size standards for their industry.

Employers may be eligible for a second draw if they: 

Have no more than 300 employees.

Received a first draw PPP loan and used the full amount only for authorized uses.

Can show at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.

Patrick Dennison, an attorney with Fisher Phillips in Pittsburgh, noted that the latest FAQs make clear that applicants may not use the SBA's established size standards or the alternative size standard to qualify for a second draw PPP loan, though there are a few, narrow exceptions for specific business types. 

"In general, the size eligibility requirement for Second Draw PPP Loans are narrower than the size eligibility requirement for First Draw PPP Loans," the SBA said. "With some exceptions, an applicant is eligible for a Second Draw PPP Loan only if it, together with its affiliates (if applicable), employs no more than 300 employees."

Loan Forgiveness

The covered period for loan forgiveness begins on the date the loan was originally disbursed and ends on a date selected by the borrower that is at least eight weeks—and not more than 24 weeks—after the date of loan disbursement, he explained.

Employers can apply for loan forgiveness if the following criteria are met during the covered period:

Employee headcount and pay levels are maintained.

Loan funds are spent on payroll costs and other eligible expenses.

At least 60 percent of the funds are spent on payroll costs.

For the second draw, employee headcount and compensation levels must be maintained in the same manner as required for the first draw.

First draw and second draw PPP loans "can be used to help fund payroll costs, including benefits, and may also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations," according to the SBA. Some payroll expenses are excluded, such as federal employment taxes and payments to independent contractors.

Mahoney recommended that businesses start compiling the information needed to submit a loan forgiveness application during the covered period. "This will streamline loan forgiveness and ensure that the business is able to make informed business decisions over the course of its loan."

Employers should carefully review information on the SBA and Treasury Department websites. "The most common mistake employers make concerning PPP loans is failing to keep up with the changes in rules or guidance," Dennison noted.

Excerpt for SHRM article dates 3-31-21

COVID relief bill will let businesses seek second PPP loan

 Some American small businesses will be able to seek a second government-backed loan to help them get through the coronavirus pandemic.

The $900 billion stimulus bill that’s headed to President Trump’s desk includes about $284 billion in additional funding for the Paycheck Protection Program, which offered small employers forgivable loans meant to keep their staff on the payroll.

The Small Business Administration has already distributed 5.2 million PPP loans worth more than $525 billion. Businesses that are still struggling may be able to get another round of help — but they’ll have to meet stricter criteria than in the spring.

For one, only companies with 300 or fewer employees will be eligible for second loans, down from a limit of 500 in the program’s first iteration, according to text of the stimulus legislation Congress passed Monday.

Additional loans will be capped at $2 million instead of the previous limit of $10 million. And applicants seeking a second loan will have to show that their sales in at least one quarter of this year dropped by 25 percent or more from the prior year’s levels.

Additionally, the new law bars publicly traded companies from seeking PPP funds, a provision that was added after outrage about hundreds of such firms snagging millions of dollars in loans. Some big names such as Shake Shack and Lindblad Expeditions have returned the money.

The bill also simplifies the process for forgiving loans of less than $150,000. Those small borrowers will just have to sign a one-page form attesting that the money was used for its intended purpose.

That’s a win for banks, which had expressed concerns that the initial forgiveness process was too burdensome for small companies receiving little loans.

The stimulus package also gives the SBA $50 million to conduct audits and take up other efforts to tackle fraud in the massive program, according to the New York Times. The agency and the Treasury Department have already pledged to audit all loans larger than $2 million, but that will encompass less than 1 percent of the loans and only about 20 percent of all the money that’s been given out.

From New York Post, 12-22-20