Paycheck Protection Program (PPP) Amendments
Extension of Program: The bill extends the deadline to apply for PPP loans from August 8, 2020 to March 31, 2021. In addition, the bill appropriates an additional $284.5 billion for PPP and PPP second draw loans. Of that amount, the bill provides set-asides for guarantees of loans made by community financial institutions, insured depository institutions with consolidated assets of less than $10 billion, credit unions with consolidated assets of less than $10 billion and institutions of the Farm Credit System with consolidated assets of less than $10 billion. In addition, the bill creates set-asides for businesses with not more than 10 employees and recipients in low-income or moderate-income neighborhoods. The bill also appropriates $20 billion for Targeted EIDL Advances and $15 billion for Shuttered Venue Operator Grants.
Expanded List of Forgivable Expenses: The bill expands the allowable, and forgivable, uses of PPP loans to include: (1) certain operations expenditures, defined as payments for business certain software or cloud computing services; (2) property damage or looting costs due to public disturbances during 2020 that were not covered by insurance; (3) certain supplier costs for goods that are essential to the operation of the borrower's business, made pursuant to a contract, order, or purchase order in effect before the covered period of the loan or, for perishable goods, in effect before or during the covered period; and (4) worker protection expenditures made to comply with COVID-19 health requirements or guidance. This expanded list will be effective as if included in the CARES Act and apply to any PPP loan made before, on or after the date the bill is enacted, except for loans with respect to which the borrower has already received loan forgiveness. The bill maintains the requirement that at least 60 percent of PPP loan proceeds be used on payroll costs in order to receive loan forgiveness; and up to 40 percent may continue to be used for mortgage interest payments, rent, and utility payments, in addition to these additional uses of PPP loans (i.e., operations expenditures, property damage costs, supplier costs, and worker protection expenditures).
Taxation of Business Expenses: In response to complaints regarding the IRS's treatment of allowable expenses paid for using forgiven PPP loan funds, the bill clarifies such expenses are tax deductible. Specifically, forgiven amounts of a PPP loan should not be included in the gross income of the eligible recipient. No deduction can be denied or reduced, no tax attribute can be reduced, and no basis increase can be denied by reason of the exclusion of forgiven amounts of PPP loans from gross income. This provision only applies to PPP loans forgiven after enactment of the bill. The bill provides additional taxation provisions for partnerships or S corporations that receive PPP loans.
Lender Safe Harbor Revised: The bill amends the lender "hold harmless" provision. Rather than only requiring that a lender receive documentation from the eligible loan recipient attesting to the accuracy of information provided by a loan recipient for the lender to be held harmless, the bill holds a lender harmless from a range of enforcement actions to the extent such lender "relies on the certifications and documentation" submitted by a loan recipient. For the provision to apply, the lender must act in good faith in originating or forgiving any PPP loan based on that reliance. In addition, all other relevant federal, state, local, and other statutory and regulatory requirements applicable to the lender must be satisfied with respect to the PPP loan. This provision will be effective as if included in the CARES Act.
Covered Period: For loans for which forgiveness is provided after the date the bill is enacted, the bill allows a loan recipient to choose the end date of its PPP loan covered period, as long as the date is between 8 and 24 weeks of the date of loan origination.
Simplified Forgiveness Application for Smaller Loans: For loans up to $150,000, the bill provides that the loan must be forgiven if the loan recipient signs and submits a one-page certification (established by the SBA Administrator not later than 24 hours after the date of enactment of the bill) to the lender that provides a description of the number of employees the recipient was able to retain because of the PPP loan, the estimate amount of the PPP loan spent on payroll costs, and the total loan value. The certification must also attest that the recipient has accurately provided the required certification and complied with the PPP statutory requirements. The recipient must also retain employment records relevant to the form for four years and other records for three years. These small loans may still be audited by the SBA Administrator. This forgiveness simplification provision would be effective as if included in the CARES Act.
Loan Audit: Not later than 45 days after the date of enactment of the bill, the SBA Administrator is required to submit to the Small Business committees of the House and Senate a plan detailing the SBA's policies, procedures, and metrics related to auditing PPP loans. The Administrator will be required to update the committees monthly on this plan.
Limitations on Eligibility: The bill makes businesses or organizations that were not in operation on February 15, 2020, ineligible for PPP loans. In addition, entities that receive a Shuttered Venue Operator Grant after enactment of the bill are ineligible for PPP loans going forward.
7(a) Loan Payment Deferral: The bill allows lenders to defer payments of principal and interest of 7(a) loans for a grace period of not more than one year, with the option for an additional deferment period if the borrower provides documentation justifying the deferment. Should investors in the secondary market decline to approve a deferral requested by a lender, the bill instructs the SBA Administrator to purchase the loan to allow the borrower to receive full payment deferment relief, provided there is no cost to purchasing the loan.
Revised Maximum Loan: For loans applied for after enactment of the bill, the maximum PPP loan amount is $2 million instead of $10 million. The bill would also make certain changes to how to calculate the maximum loan amount for farmers and ranchers, although the maximum remains $2 million.
Seasonal Employer: The bill adds a definition of "seasonal employer." A seasonal employer would be an eligible PPP recipient that does not operate for more than 7 months in any calendar year or, during the preceding calendar year, had gross receipts for any 6 months of that year that were not more than one-third of the gross receipts for the other 6 months of that year. In addition, the bill would amend the calculation for the maximum PPP loan amount for seasonal employers. Rather than relying on the average total monthly payments for payroll in a 12-week period between February 15 (or March 1) and June 30, 2019, the bill requires a seasonal employer to use the average total monthly payments for any 12-week period between February 15, 2019 and February 15, 2020.
501(c)(6) Organizations: The bill expands nonprofit eligibility for PPP loans to include 501(c)(6) organizations with not more than 300 employees, excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity. To be eligible, the 501(c)(6) organization has to receive no more than 15 percent of its receipts from lobbying activities, and lobbying activities can comprise no more than 15 percent of the organization's total activities. In addition, the cost of the lobbying activities cannot exceed $1 million during the most recent tax year of the organization that ended prior to February 15, 2020.
The bill also allows destination marketing organizations with not more than 300 employees to receive PPP loans, subject to certain requirements. The bill makes clear, however, none of the proceeds of a PPP loan can be used for lobbying activities and expenditures.
Bankruptcy: For an entity in bankruptcy proceedings, the bill permits a court to authorize a debtor in possession or a trustee to obtain a PPP or second draw loan. The loan would be treated as a debt to the extent the loan is not forgiven, and would be given priority over any or all administrative expenses of the kinds specified in 11 U.S.C. §§ 503(b) or 507(b). The bill establishes certain procedures for including these loans in reorganization plans.
Oversight: The bill requires the SBA Administrator, subject to few exceptions, to comply with any data or information requests or inquiries made by the Comptroller General within 15 days (or such later date as the Comptroller General specifies). In addition, the SBA Administrator and the Treasury Secretary are required to testify before the Small Business congressional committees not later than 120 days after the date of enactment of the bill regarding implementation of changes to PPP, and not less than twice each year thereafter for two years from the date of enactment.
Sole Proprietorship Documentation Requirement: The bill broadens the authority of the SBA Administrator to determine what documentation may be necessary to establish eligibility.
Seasonal Employers Election of 12-Week Period: The bill amends the timeframe seasonal employers may use to the maximum loan amount for such employers. Rather than calculating the average total monthly payments for payroll from February 15 to June 30, 2019, the bill permits using any 12-week period between February 15, 2019 and February 15, 2020. This amendment does not apply to loans already forgiven.
Nonrecourse Requirements: The bill expands the nonrecourse requirements to include refinanced loans. The current provision limits the SBA Administrator's recourse against individual shareholders, members, or partners of an eligible recipient of a PPP loan to instances where PPP loan proceeds are used for purposes not authorized by the PPP loan program. This provision extends that limitation to refinanced loans.
Prohibition on Receiving Duplicative Amounts for Payroll Costs: The bill clarifies borrowers may not receive duplicative loan amounts for payroll costs.
Publicly Traded Companies Prohibition: The bill clarifies that publicly traded companies are not eligible to receive PPP loans.
Interest Rate Clarification: The bill clarifies the interest rate for PPP loans, which shall not exceed 4 percent, is calculated on a non-compounding, non-adjustable basis.
Reimbursement for Processing: The bill clarifies SBA reimbursement rates as discussed below. For covered loans made prior to enactment of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act SBA shall reimburse a lender at a rate based on the balance of the financing outstanding at the time of disbursement of the covered loan, of: (1) 5 percent for loans of not more than $350,000; (2) 3 percent for loans of more than $350,000 but less than $2,000,000; and (3) 1 percent for loans of not less than $2,000,000. For covered loans made after enactment of this bill, SBA small reimburse a lender: (1) for a covered loan of $50,000 or less, the lesser of (a) 50 percent of the balance of the financing outstanding at the time of disbursement or (b) $2,500; (2) 5 percent for loans of more than $50,000 but not more than $350,000; (3) 3 percent for loans of more than $350,000 but less than $2,000,000; and (4) 1 percent for covered loans of $2,000,000 or more. The bill clarifies a lender shall only be responsible for paying agent fees for which the lender directly contracts with the agent. The bill also clarifies agent fees are "paid by the eligible recipient and may not be paid out of the proceeds of a covered loan." In addition, the bill states reimbursement for processing will be made no later than 5 days after the reported disbursement of a covered loan. A lender may not be required to repay the processing fee unless the lender is found guilty of an act of fraud in connection with the covered loan.
Reapplication for and Modification to PPP: The bill directs the SBA Administrator to issue rules or guidance regarding borrowers who return amounts disbursed under a covered loan or does not accept the full amount of the approved covered loan. Specifically, eligible borrowers who returned all or part of a covered loan may reapply for a covered loan for an amount equal to the difference between the amount retained from the initial covered loan and the maximum amount for a covered loan applicable to such borrower. Eligible borrowers who did not accept the full amount of a covered loan may request a modification to increase the amount of the covered loan to the maximum amount for a covered loan applicable to such borrower.
Eligibility for Certain News Organizations: The bill expands eligibility for PPP loans to business concerns, including stations which broadcast pursuant to an FCC license, that: (1) employ not more than 500 employees (or the size standard established for the NAICS code applicable to the business concern), per physical location of such business concern; or (2) any nonprofit organization that is a public broadcasting entity. The business concern must be majority owned or controlled by a business concern covered by a NAICS code beginning with 511110 or 5151, and the business concern must make a good faith certification that proceeds of the loan will be used to support expenses at the component of the business concern that produces or distributes locally focused or emergency information.
PPP Second Draw Loans
As called for by many lawmakers and businesses, alike, the bill allows the SBA to make additional PPP loans of up to $2 million. The second draw loans are available only to entities that, by the time they receive a second draw loan, have used or will use the full amount of an original PPP loan. Entities may only receive one second draw loan. The additional PPP loans are available to business concerns, nonprofits, housing cooperatives, veterans organizations, tribal business concerns, eligible self-employed individuals, sole proprietors, independent contractors, or small agricultural cooperatives that: (1) employ not more than 300 employees, and (2) had gross receipts during the first, second, third, or (for applications submitted on or after January 1, 2021) fourth quarter in 2020 that were at least 25 percent less than gross receipts of the entity during the same quarter in 2019. For the gross receipts requirement, different calculations apply for entities that were not in business during certain quarters of 2019.
Similar limitations on eligibility for original PPP loans also apply to the second draw loans. In addition, entities that receive a Shuttered Venue Operator Grant are ineligible for second draw loans. If an entity has more than one physical location, then it may still be eligible for a second draw loan if there are not more than 300 employees per physical location (in addition to the other requirements). The bill applies the same waiver of affiliation rules to the second draw loans as apply to the original PPP loans, with the modification that a business concern (together with its affiliates) must have not more than 300 employees.
As with original PPP loans, an eligible entity's loan amount is calculated by multiplying its average monthly payroll costs by 2.5, subject to a maximum of $2 million. In the case of eligible entities that are assigned a NAICS code beginning with 72, the loan amount is calculated as the eligible entity's average monthly payroll costs multiplied by 3.5, subject to a maximum of $2 million.
For second draw loans of up to $150,000, an entity need only submit a certification attesting it meets the applicable revenue loss requirements for the loan. To obtain loan forgiveness, it need only produce "adequate documentation that the eligible entity met such revenue loss standard."
For loan forgiveness of second draw loans, an entity is eligible for forgiveness in an amount equal to the sum of the following costs during the covered period: payroll costs (with some limitations), mortgage interest payments, certain operations expenditures, certain property damage costs, rent payments, utility payments, certain supplier costs, and certain worker protection expenditures related to COVID-19. To obtain full forgiveness, payroll costs need to make up at least 60 percent of the forgiveness amount.
Set-Aside: Not less than $25 billion of the amount guaranteed for second draw loans must be made to eligible entities with not more than 10 employees or for loan amounts of $250,000 or less to eligible entities located in low- or moderate-income neighborhoods, as defined by the Community Reinvestment Act of 1977. In addition, not less than $15 billion of the total amount of second draw loans must be made by community financial institutions and insured depository institutions, credit unions, and institutions of the Farm Credit System with assets of less than $10 billion.
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