Revisions to the Paycheck Protection Program

Schneider Downs continues to track the evolving landscape of federal financial programs offered in the wake of the business disruption caused by the coronavirus crisis. On December 21, 2020, the Consolidated Appropriations Act (the Act) was passed by both houses of Congress. See our article for a high level summary of some of the provisions included in the Act. The Economic Aid to Hard-Hit Small Businesses, Nonprofit, and Venues Act (the Economic Aid Act), which is part of the Act, includes revisions to the Paycheck Protection Program (PPP) that was established under the Corona Aid, Response and Economic Security Act (CARES Act).  

Additional Eligible Expenses

For loans that have not yet been forgiven, borrowers may now also include as forgivable costs, as defined by the Economic Aid Act, the following:

• Any covered operations expenditure;
• Any covered property damage cost;
• Any covered supplier cost; and
• Any covered worker protection expenditure

Additionally, eligible health benefit costs have been expanded to include more than the continuation of group health care benefits under the definition of the maximum loan and forgivable uses.  Now included in health care costs are group life, disability, vision and dental insurance.  Under interim final rules issued by the Secretary of the Treasury and the SBA, vision and dental insurance costs were already included as forgivable costs, but this expands those costs to be included as a part of the calculation of a borrower’s maximum loan. This is important since borrowers have the ability to increase their original loan under the Economic Aid Act.   

The effective date of the revision and inclusion of these costs are as of the effective date of the CARES Act, March 27, 2020.  

Selection of Covered Period for Forgiveness

The definition of the covered period has been revised under the Economic Aid Act to be any period between 8 weeks and 24 weeks. Under the original rules, borrowers with a loan origination prior to June 5, 2020, had the option to select a covered period of 8 weeks or 24 weeks.  Borrowers with loan originations after June 5, 2020 could only use a 24-week covered period.   Many borrowers have found themselves spending significantly more than the loan proceeds throughout their covered period and weighting prudent business decisions (i.e. layoffs and furloughs) due to lasting impact of COVID-19 on some business sectors and the impact of their forgiveness.  Revising the covered period to allow for a business to “cut-off” the period prior the end of 24 weeks will allow the borrower to better manage their business based on economic conditions.  

Simplified Forgiveness Application

For loans less than $150,000, a simplified forgiveness application will be required to be released by the SBA within 24 days from the enactment date of the Economic Aid Act. The application is required to be not more than 1 page and will require the borrower to provide the following information:

• Description of the number of employees the borrower was able to retain as a result of the loan; 
• The estimated amount of the covered loan amount spent; and 
• The total loan value

Borrowers seeking forgiveness will be required to attest that the applications accurately provided the required certification and complied with requirements under the PPP forgiveness costs (i.e. spent funds on eligible costs). Borrowers will be required to retain records related to their forgiveness that support employment matters for 4 years, and other records for 3 years. 

Documentation requirements remain unchanged for loans greater than $150,000.  

Requests for increase loan amounts

The Economic Aid Act requires that, within 17 days of the enactment date, the SBA issue guidance for eligible entities to request increases in their loan as a result of changes to the rules.  Also, for approved borrowers that returned their loan funds or did not take the maximum loan amount allowed under the rules, those borrowers may also re-request the loan.  

Definition of Seasonal Employers

The Economic Aid Act provides a definition of a seasonal employer: (a) a business that does not operate more than 7 months during a calendar year; and (b) during the preceding calendar year gross receipts for any 6 months were not more than 33.33% of the other 6 months.  

Eligible Entities

The following entities as defined by the Economic Aid Act are now eligible for PPP loans:

• Housing Cooperatives, however, these entities are subject to a limit of 300 employees;
• Individual stations, newspapers and public broadcasting organizations;
• 501(c)(6) and Designation marketing organizations; and
• Certain organization under bankruptcy proceedings

Prohibition of lobbying activities

The Economic Aid Act included other provisions that impact the PPP.  It prohibited the use of loan proceeds for the use of lobbying activities that it defines.  

Commitment and Authority

Under the original PPP, loans were available until August 8, 2020.  Once the Economic Aid Act becomes effective, loans for newly eligible entities and second draws will be available until March 31, 2021 or until the funds have been exhausted.  The total available funds for PPP1 and PPP2 is $806.45 billion.  As of August 8, 2020, $525.01 billion was distributed during the first round.  

As we seen over the existence of the PPP, the Small Business Administration (SBA) will be a under significant time crunch to issue regulations to carry out this Act, as it has 10 days from the enactment of the bill issue such regulations unless otherwise provided in the Economic Aid Act.

If you need more information or assistance regarding your PPP loan, visit our website at schneiderdowns.com/ppp, reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal at [email protected].