Borrower Guidance for the Paycheck Protection Program: Round Two

On December 27, 2020 the President signed legislation to address the ongoing economic effects of the coronavirus pandemic. This legislation reopens the Paycheck Protection Program (“PPP”). PPP loans are available to both first-time borrowers and businesses that previously received a PPP loan. PPP loans are available until the later of March 31, 2021 or until all allocated funds are disbursed.

This borrower guide is provided to help potential borrowers determine if they qualify for a new PPP loan and how loan forgiveness is structured.

Eligibility Requirements

• All borrowers applying for a PPP loan need to meet the Small Business Administration’s (SBA) certification of need requirement, attesting that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

First-Time PPP Borrowers

• Borrowers applying for their first PPP loan, including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors, must:

  • have 500 or fewer employees;

  • have been in operation on or before February 15, 2020; and

  • unless a nonprofit or religious organization, not be listed under 13 C.F.R. 120.110.

Second Draw PPP Borrowers

• Borrowers applying for a second draw PPP loan, including nonprofits, veterans’ organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors, must:

  • have 300 or fewer employees (or 300 or fewer employees per physical location for certain news organizations and for businesses assigned NAICS code 72 (hotels and restaurants));

  • have used the full amount of their first PPP loan before receiving additional PPP funds;

  • Have used the full amount of their first PPP loan on eligible expenses;

  • have experienced at least a 25 percent reduction in gross receipts between corresponding quarters in 2019 and 2020; and special rules apply to borrowers that were not in business for all or part of 2019.

  • unless a nonprofit or religious organization, not be listed under 13 C.F.R. 120.110.

Ineligible Entities

The following entities are ineligible to receive PPP loans:

• Entities other than nonprofits and religious organizations listed under 13 C.F.R. 120.110;

• Entities primarily engaged in political and lobbying activities including entities that are organized for engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public document;

• Entities affiliated with entities in the People’s Republic of China or Hong Kong;

• Registrants under the Foreign Agents Registration Act;

• Entities in which certain public officials or members of their spouse own or control at least 20% of any class of equity;

• Publicly traded companies;

• Entities which have permanently closed; and

• Entities who receive a grant under the Shuttered Venue Operator Grant program.

When Borrowers Can Apply

Borrowers can start submitting PPP loan applications to eligible lenders immediately. Businesses are advised to file as soon as possible because a limited amount has been allocated to funding PPP loans.

Maximum Loan Amount

First-Time PPP Borrowers

Generally, the maximum loan amount for first-time borrowers is the lessor of:

• 2.5x the borrower’s monthly payroll costs; or

• $10,000,000.

The maximum loan amount applicable to farmers and ranchers who are sole proprietors, independent contractors, or self-employed individuals, is limited to the lessor of:

• 2.5x the borrower’s monthly payroll costs; or

• $2,000,000.

Second Draw PPP Borrowers

Generally, the maximum loan amount for PPP second draw borrowers is the lessor of:

• 2.5x the borrower’s monthly payroll costs; or

• $2,000,000.

For second draw borrowers assigned NAICS code 72 (Accommodation and Food Services industry, which includes hotels and restaurants) the maximum loan amount is the lessor of:

• 3.5x the borrower’s monthly payroll costs; or

• $2,000,000.

Calculation of Payroll Costs

In order to calculate their maximum loan amount, borrowers must calculate their payroll costs for either calendar year 2019, calendar year 2020, or the 12-month period prior to the date the loan is made (whichever the borrower chooses), and multiply that amount by 2.5. The term “payroll costs” includes:

• The salary, wages, commissions, or similar compensation of employees whose principal residence in the United States;

• Cash tips or the equivalent;

• Payment for vacation, paternal, family, medical, or sick leave;

• Allowance for separation or dismissal;

• Payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums and retirement;

• Payment of state and local taxes assessed on compensation of employees; and

• For independent contractors or sole proprietors, wages, commissions, income, or net earnings from self-employment, or similar compensation.

The term “payroll costs” does not include:

• Compensation for employees whose principal place of residence is outside of the United States;

• Compensation of individual employees in excess of $100,000 on an annualized basis;

• Federal employment taxes imposed or withheld during the applicable period; and

• Qualified sick and family leave wages for which a credit is allowed under Sections 7001 and 7003 of the Families First Coronavirus Response Act.

Key Loan Terms

The main loan terms will be the same for both first and second draw PPP loans and include:

• A 100% guarantee by the SBA;

• No required collateral;

• No required personal guaranty;

• Interest rate of 1%, calculated on a non-compounding, non-adjustable basis; and

• Maturity of five years.

Loan Forgiveness

A borrower must pick a “covered period” ending at any time between 8-weeks and 24-weeks after loan origination. Regardless of the covered period a borrower picks, each borrower must use the full amount of the PPP loan proceeds on eligible expenses during the selected covered period to be eligible for full loan forgiveness.

100 percent of the PPP loan is forgivable as long as these requirements are met:

• The loan proceeds are spent, or the qualifying costs incurred, within the covered period following funding of the loan;

• The funds are used for payroll costs and the other forgivable loan uses; and

• At least 60 percent of the loan amount has been used for payroll costs such as maintaining staffing and pay levels.

While borrowers are still required to spend at least 60 percent of their PPP loan proceeds on eligible payroll costs to be eligible for full forgiveness, the recent update expands the permissible use of PPP loan proceeds to include the following:

• payroll costs (except some qualified wages under the CARES Act and Taxpayer Certainty and Disaster Relief Act of 2020);

• interest payments on covered mortgage obligations;

• covered rent and utility payments;

• covered operations expenditures;

• covered property damage costs;

• covered supplier costs; and

• covered worker protection expenditures.

The forgiven portion of a PPP loan can be excluded from gross income. Borrowers have 10 months from the end of their covered period to apply for forgiveness before they would need to start paying back any portion of their loan. Lenders have 60 days to decide on loan forgiveness.