Paycheck Protection Program Gives Smaller Businesses An Exclusive Application Window

2/22/21

Small businesses with fewer than 20 employees are being given exclusive access to potentially forgivable Paycheck Protection Plan loans during a two-week period from Feb. 24 through March 10.

The Biden administration said it is doing this to encourage lenders to focus more on the smallest businesses affected by the COVID-19 pandemic. It notes that 98 percent of small businesses have fewer that 20 employees.

Although this focused two-week period will prevent larger employees from applying for PPP loans during that time, the government said applications submitted by bigger businesses prior to Feb. 24 will be processed and would not face any delays. Once the two-week period is over, larger businesses will again be eligible to apply for the loans through March 31, when the current program is scheduled to end.

The administration also announced some additional changes to the PPP process:

  • Sole proprietors, independent contractors and the self-employed will become eligible for more relief. These businesses include beauticians, independent retailers and home repair contractors. A new loan-funding calculation is being set up for this group. Also, $1 billion is being set aside for businesses in this category that are located in low- and moderate-income areas.
  • It is eliminating the restriction the prevents small business owners who are delinquent on their federal student loans from obtaining PPP loans.
  • It will ensure that non-citizen owners of small businesses who are lawful residents of the United States can use their Individual Taxpayer Identification Numbers to apply for the PPP relief. This includes Green Card holders and people here on a visa. Guidance will make clear that “otherwise eligible applicants cannot be denied access to the PPP because they use ITINs to pay their taxes.”
  • It plans to eliminate a restriction that prevents small businesses owners with previous non-fraud convictions from obtaining PPP relief.

Under guidelines passed in early January 2021, small businesses interested applying for a potentially forgivable PPP have been able to apply for funds from the more than $284 billion set aside as relief at that time.

Options include first- and second-draw opportunities. First-draw loans can be for up to $10 million and are for businesses with 500 or fewer employees who meet guidelines but were unable to receive a loan before funding ran out during two earlier rounds in the first part of 2020.

Second-draw loans are for businesses that had previously received a PPP loan and have used – or will use – their full first loan by the time a requested second loan would be disbursed. Second-draw loans can be for up to $2 million for businesses with 300 or fewer employees.

For businesses applying for a PPP loan, experts are recommending that you consult with your accountant or tax professional to ensure you have all of the necessary documentation and meet the requirements. Loan applications will be open until March 31.

Full guidance for first- and second-draw loans was released by the Small Business Administration on Jan. 6 in two interim final rules. Those documents are:

Here are some highlights and things to consider:

  • Businesses applying for first-draw loans should have tax information, payroll information and details about eligible expenses.
  • Those applying for second-draw loans will need to prove a revenue reduction of 25% or more in part or all of 2020 compared with part or all of 2019.
  • To qualify for full loan forgiveness, borrowers need to spend at least 60% of the loan proceeds on payroll over a period of at least 8 weeks but no longer than 24 weeks.
  • Other qualified forgiveness expenses include rent or mortgage payments; utilities; covered protective equipment for staff meant to comply with federal health and safety guidelines related to COVID-19; certain expenditures from vendors; covered operating costs such as cloud computing and software; and covered property damage costs related to disturbances that happened during 2020.
  • First-draw applicants must have 500 or fewer employees and have been in operation on Feb. 15, 2020. Eligible applicants include sole proprietors; eligible self-employed; independent contractors; non-profits, including churches; eligible food-service and accommodation businesses operations; Sec. 501 (c)(6) business leagues such as chambers of commerce and visitor bureaus; as well as some news organizations.
  • If PPP loan forgiveness is approved for funds spent on eligible expenses, the funds will not be taxable and deductions for the related expenses will be allowed on federal tax returns. This reverses a previous ruling denying those deductions. Individual states will decide if these deductions will be allowed on state tax returns.
  • There will be a simplified one-page forgiveness application process for loans of $150,000 or less.
  • PPP borrowers will not have to deduct any Economic Injury Disaster Loan advance funds from their PPP forgiveness amount.
  • Borrowers can receive a loan amount of up to 2.5 times their annual monthly payrolls costs, although some borrowers that have NAICS codes starting with 72 - typically restaurants and hotels - may be eligible for up to 3.5 times those costs. There is an annualized $100,000 cap per employee.

Additionally, the SBA notes that:

  • PPP loans have an interest rate of 1%.
  • Loans issued prior to June 5, 2020, have a maturity of two years. Loans issued after June 5, 2020, have a maturity of five years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
  • No collateral or personal guarantees are required.

Earlier PPP legislation had allotted nearly $660 billion for the loans and proved so popular that it quickly ran dry and stopped accepting new loan applications in early August 2020.

As was the case with the original program, this will be overseen by the SBA and administered by SBA-approved financial institutions. Applications will be made directly through participating financial institutions and when they are eligible to do so, businesses will be able to apply for loan forgiveness through the institution that issued them the loan.

For information about loan forgiveness, including forms and instructions, you can visit the SBA at www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/ppp-loan-forgiveness.

The SBA also has information available to help you:

Borrowers who had been approved for a PPP loan earlier in the year are now able to submit their application for loan forgiveness to their lender. Based on the borrower’s covered period following the PPP loan disbursement, the SBA states that:

“As long as a borrower submits its loan forgiveness application within 10 months of the completion of the Covered Period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.”

The SBA also says that borrowers can submit a loan forgiveness application at any time before the maturity date of the loan, but “if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred, and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.”

If you have any questions about your PPP loan and the forgiveness application, it is recommended that you contact your lender, as well as your accountant or attorney if you have been working with them. 

For additional resources about the Paycheck Protection Program, visit the SBA website at  www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.

The information in this article is not a comprehensive list of all PPP loan eligibility requirements. For complete details it is recommended that businesses consult their accountant, lawyer or tax professional, or to refer to the full SBA guidances regarding first- and second-draw PPP loans. More details or updates will be added to this article as necessary.