Consolidated Appropriations Act: Additional Paycheck Protection Program Loans
Posted in Business Law
Consolidated Appropriations Act: Additional Paycheck Protection Program Loans

Our previous articles have summarized the Paycheck Protection Program (“PPP”) created under the Federal CARES Act: CARES Act: Paycheck Protection Program Loans, CARES Act: Loan Applications, and CARES Act: Loan Forgiveness Applications

This client alert provides information regarding the additional funding and guidelines for the PPP created by the new Consolidated Appropriations Act of 2021 (the “2021 Act”). Given this subject’s urgency and the complexity of the 2021 Act, this is simply a short summary to provide you a starting point for exploring relief that may be available to you. Check with your attorney at ECJ for the critical details governing any aspect of the 2021 Act that may be helpful to you.

The 2021 Act makes an additional $285 billion of funding available for PPP loans and expands and modifies the PPP, including allowing second draw loans for certain borrowers. The following is a summary of key changes made to the PPP by the 2021 Act: 

  • Extended Deadline: The deadline to apply for a PPP loan has been extended to March 31, 2021.
  • Second Draw Loans: The 2021 Act allows borrowers to receive a second PPP loan if they meet certain eligibility criteria, including: the borrower (i) and its affiliates do not have more than 300 employees, (ii) has used or will use the full amount of its initial PPP loan by the disbursement date of the second loan, and (iii) has lost at least 25% of its gross receipts in any quarter in 2020 compared to the same quarter in 2019. A borrower’s second PPP loan is capped at the lower of (a) 2.5 times its average monthly payroll costs for the one-year period before the loan is made or calendar year 2019 and (b) $2 million. For borrowers who received a PPP loan within 90 days of their application for a second draw, the initial and second loans cannot exceed $10 million in the aggregate.
  • Food and Hotel Industry: Second draw borrowers in the food and hotel industry are permitted to receive a second loan of up to 3.5 times their monthly average payroll costs (compared to the 2.5 times monthly average payroll cost limit for initial PPP loans). These borrowers are still subject to the $2 million cap for their second loan. Additionally, such borrowers are eligible for a second draw if they have no more than 300 employees per physical location, rather than in the aggregate.
  • Forgivable Expenses: Expenses paid from PPP funds for which loan forgiveness may be granted have been expanded. For example, supplier costs, investments in facility modifications, personal protective equipment that businesses require to operate safely, business software and cloud computing services that help facilitate business operations, and property damage due to vandalism or looting during 2020 public disturbances that were not covered by insurance are now forgivable.
  • Covered Period: For purposes of loan forgiveness, borrowers can choose between the 8-week or 24-week covered periods (i.e., the period during which a borrower must spend PPP loan proceeds on qualified expenses).
  • Eligible Business: The 2021 Act expands the types of entities eligible for PPP loans. For example, 501(c)(6) organizations that do not have more than 300 employees and are not primarily engaged in political or lobbying activities are now eligible to receive a first-time PPP loan. Additionally, certain news stations licensed by the FCC under Title III of the Communications Act of 1934 are eligible to receive a PPP loan.
  • EIDL Loans: Borrowers no longer must deduct the amount of their Economic Injury Disaster Loan (EIDL) advances from their PPP forgiveness amounts. Our previous article summarized the EIDL: CARES Act: Economic Injury Disaster Loans
  • Simplified Forgiveness Applications: Borrowers who received a PPP loan of $150,000 or less are subject to a simplified forgiveness process. The borrower must sign and submit a letter of certification on a form to be provided by the SBA. The form will require specific information related to the loan, including the number of employees the borrower was able to retain because of the covered portion of the loan, the estimated amount of the covered portion of the loan spent on payroll costs and the total loan value. Additionally, these borrowers only must retain applicable employment records for four years and other applicable records for three years, as compared to six years for larger borrowers.

Ken Luer is the Chair of the Business & Corporate Law Department of Ervin Cohen & Jessup LLP and Yasmin Azodi is an Associate in the Business & Corporate Law Department.

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