Bank Notes

PPP Restart: What Applies When?

January 7, 2021

By: Mark A. Mangano

On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA)¹ became law. The CAA contains the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act). The Economic Aid Act contains numerous provisions amending the Paycheck Protection Program (PPP). The effective dates of the amendments vary. If not otherwise provided, the provisions of the Economic Aid Act are effective upon enactment and apply to loans and grants made after that date. This article reviews the provisions that have effective dates that differ from the default effective date.

Before, On, or After, Including Forgiveness

Many of the PPP amendments in the Economic Aid Act apply to PPP loans as if the amendment had been included in the Coronavirus Aid, Relief, and Security Act (CARES Act) that created the PPP even if the PPP loan has already been forgiven. Amendments in this group include the following.

Hold Harmless
Section 305 provides that lenders may rely on any certification or documentation submitted by an applicant or borrower for an initial or second draw PPP loan that is submitted pursuant to all applicable statutory requirements, regulations, and guidance related to initial or second draw PPP loan and attests that the applicant has accurately provided required certification or documentation to the lender.

No enforcement action will be taken against the lender, and the lender shall not be subject to any penalties relating to loan origination or forgiveness of the initial or second draw PPP loan, if the lender acts in good faith relating to loan origination or forgiveness of the initial or second draw PPP loan based on that reliance; and all other relevant Federal, State, local, and other statutory and regulatory requirements applicable to the lender are satisfied with respect to the initial or second draw PPP loan.

Selection of Covered Period for Forgiveness
Section 306 modifies the definitions of covered period. It retains the options to choose and 8-week or 24-week period after origination of a PPP loan but eliminates the limitation of December 31, 2020.

Simplified Forgiveness Application
Section 307 requires the Small Business Administration (SBA) to establish a simplified forgiveness application for PPP loans of up to $150,000 within 24 days of enactment.

Specific Group Insurance Payments as Payroll Costs
Section 308 adds group life, disability, vision, or dental insurance to the list of benefits that may be included in the definition of “payroll costs.”

Additional Limitations on Eligibility
Section 310 adds a requirement that a business or organization must have been in operation on February 15, 2020 to be eligible for a PPP loan.

Definition of Seasonal Employer
Section 315 adds a definition of “seasonal employer” that provides the PPP recipient either does not operate for more than seven months per year or during the preceding calendar year had gross receipts for any six months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other six months of the year.

Documentation Required for Certain Eligible Recipients
Section 335 permits greater flexibility for the SBA in determining documentation necessary to establish the eligibility of self-employed individuals, independent contractors, and sole proprietorships.

Inclusion of Certain Refinancing in Nonrecourse Requirements
Section 337 expands the limitations on recourse against shareholders, members, or partners of eligible recipients of a covered loan.

Application of Certain Terms Through Life of Covered Loan
Section 338 extends fee waivers, personal guarantee waivers and deferral eligibility beyond the covered period to the life of PPP loans.

Reimbursement for Processing
Section 340 provides that PPP lenders are not obligated to pay a borrower’s agent fees unless the lender contracts with the agent directly. Agent fees may not be paid out of PPP loan proceeds.

Covered Period for New PPP Loans
Section 343 provides that the covered period for PPP loans is extended from December 31, 2020 to March 31, 2021.

Before, On, or After (But Not After Forgiveness)

Several provisions apply to PPP loans made before the Economic Aid Act but only if they were not forgiven before enactment of the Act.

Additional Eligible Expenses
Section 304 expands the business expenses for which PPP loan proceeds may be used to include certain operating expenditures, property damage costs, supplier costs, and worker protection expenditures.

Calculation of Maximum Loan Amount for Farmers and Ranchers
Section 313 creates a new formula for calculating the maximum loan available to farmers and ranchers. If the new formula would have resulted in a larger PPP loan than the one a borrower received, lenders may provide additional loan amounts based upon the new calculation.

Election of 12-Week Period by Seasonal Employers
Section 336 permits seasonal employers to use the average monthly payments for payroll from any 12-week period between February 15, 2019 and February 15, 2020 for calculating the maximum PPP loan amount.

By Agreement for Loans Made Before Enactment
Section 339 modifies the interest rate requirements for new PPP loans to require that the rate be calculated on a non-compounding, non-adjustable basis. The additional requirement may be applied to loans originated before Economic Aid Act enactment if agreed by the lender and borrower.

¹  https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf