The Small Business Association (SBA) issued a fresh set of Paycheck Protection Program (PPP) guidelines on January 6, 2021. The new guidelines expand the scope of the original PPP to help small businesses hit worst by the pandemic. Community financial institutions will be able to start making first-draw loans from January 11 and second-draw PPP loans from January 13. The application process will remain open till March 31.

The revised PPP has two interim final rules focussing on second-draw loans, forgivable loans for first-time borrowers, and a three-page guidance to help minority-owned businesses.

For first-time borrowers

For the first-time borrowers who couldn’t apply in the original round of PPP, the rules stay more or less the same. Businesses that were in operation on Feb. 15, 2020, and have 500 or fewer employees are eligible for PPP. It also covers self-employed professionals and independent contractors. Borrowers need to produce relevant documents such as Schedule C, Schedule F, tax details, and employee wages. For partnership ventures, the application should reflect the partnership rather than being submitted on the individual level.

However, unlike the original PPP, businesses owned or run by the president, vice president, and members of Congress won’t be eligible for PPP loans anymore. Just like the original PPP, the maximum amount for a first-draw PPP loan is capped at $10 million.

For second time borrowers

The biggest changes in the updated PPP have come with the introduction of second-draw PPP loans. For second time borrowers, there are a few criteria that they need to fulfill.

Businesses will be able to apply for a PPP loan a second time if they have 300 or fewer employees. This is a noticeable drop from the 500 limit for first-time borrowers. Borrowers also need to use the entire amount of the first-draw loan on eligible expenses on or before the second one arrives. The third condition is that the businesses need to show that their gross receipts in 2020 have seen a reduction of 25% or more in comparison to 2019. Qualified businesses need to produce receipts of a 2020 quarter along with the equivalent quarter from 2019. Businesses that were open in all quarters of 2019 can also show annual tax records for the same.

Unlike the first-draw loans, the maximum amount of second-draw loans are capped at $2 million.

For businesses run by underserved communities

The new PPP rules prioritize businesses run by underserved communities by making it easier for them to apply for the PPP loan. For the first two days, the SBA only accepted applications from community financial institutions. This directly helped small borrowers and businesses in low-income communities.

In its three-page guidance, the SBA states the measures it is planning to take to help minority, veteran, and women-owned businesses. The steps include directing Lender Match queries to lenders known to help small businesses, encouraging and educating businesses, and promoting the program extensively. The SBA has also chalked up a considerable amount of set-asides to help these underserved communities.

Loan forgiveness

The new PPP rules continue to focus on loan forgiveness and the Economic Aid Act has included a few extra expenses that are eligible for this. Borrowers that receive a loan amount of $150,000 or less can receive loan forgiveness from the lenders. Apart from the original expenses such as payroll, rent, mortgage, and utilities, the new guidelines include worker protection expenditure in line with COVID-19, property damages caused by disruptions in 2020 that are not already covered by insurance companies, and business software expenditure.

Only borrowers who have spent 60% of the amount or more on payroll for a chosen period between 8 to 24 weeks are eligible for loan forgiveness. The SBA aims to simplify the process with the introduction of a new form that will not require additional information unless the lender specifically asks for it.

New businesses eligible for PPP

The new PPP rules also widen the net by making more businesses eligible for loans. Apart from empowering minority and women-owned businesses, the PPP will also cover food and accommodation services with NAICS code 72 that have less than 500 employees in a physical location. These borrowers can receive a loan amount as much as 3.5 times their monthly payroll in the second-draw loans. In comparison, most businesses receive as much as 2.5 times their average monthly payroll.

Apart from this, Sec. 501(c)(6) business groups such as chambers of commerce and visitors’ bureaus will also be able to enjoy PPP. Nonprofit businesses, churches, news organizations, and broadcasting agencies with NAICS code 511110 or 5151 are eligible as well, but sports leagues are not covered.

The reopening of PPP and the addition of new rules have the potential for a great positive impact on small businesses. The new rules have also cleared up a good deal of the tax confusion by specifying that the eligible costs paid with PPP funding are now deductible. While businesses that were permanently closed in 2020 can not apply for PPP loans, these efforts are sure to help many surviving small businesses ride out the hard times.

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