LEGAL CORNER: The New COVID-19 Relief Package: Highlights of the Second Round
John Dolgetta, Esq. | January 13, 2021
On Dec. 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 [see https://bit.ly/3qb3WOP] which passed overwhelmingly by both the House and Senate. The Appropriations Act is the largest bill (over 5,000 pages) ever passed by Congress. It includes $900 billion in pandemic relief funds to assist businesses and provide important funding and resources for vaccination measures. This article will focus on the major aspects of the COVID-19 relief measures included for businesses.
Updates to the Second Round of The PPP Loan Program
The Appropriations Act expanded and modified critical aspects of the Paycheck Protection Program. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”), which was included as part of the Appropriations Act, modifies and expands the PPP Loan Program. The Economic Aid Act allows businesses to apply for a PPP Loan if they had not done so in the first round. The Economic Aid Act also allows businesses that received a PPP Loan in the first round to apply for a second draw. Additionally, it allows those businesses that did not receive their full loan amount, or returned unused funds in the first round, to request additional funding under the PPP.
New Rules and Guidance Issued by the SBA Relating to PPP
On Jan. 6, 2021, the Small Business Administration issued rules concerning the Economic Aid Act and the second round of PPP. Some of the notable provisions and changes as highlighted by the SBA [see https://bit.ly/2LgjJNP] are as follows:
• PPP borrowers can set their PPP loan’s covered period to be any length between eight and 24 weeks to best meet their business needs;
• PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs and worker protection expenditures;
• The program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, destination marketing organizations, among other types of organizations;
• The PPP provides greater flexibility for seasonal employees;
The SBA points out that the under the new Economic Aid Act, the borrower of the second draw must meet the following requirements:
• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
• Has no more than 300 employees; and
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
Under the Economic Aid Act, $284.45 billion is allocated for second round PPP Loans, which loans are targeted toward borrowers in low- and moderate- income neighborhoods, smaller businesses, and those businesses most impacted by the COVID-19 Pandemic [see https://bit.ly/3i4pb1U]. It also targets funding for smaller community lenders that are more likely to provide loans in these areas and to these borrowers.
PPP Focus on Smaller, Heavily Impacted
And Minority-Owned Businesses
The Economic Aid Act focuses on providing economic assistance to “…minority, underserved, veteran, and women-owned business concerns” [see https://bit.ly/3i4pb1U]. The SBA is undertaking a variety of steps, including, but not limited to, the following:
• Accept PPP loan applications only from community financial institutions for at least the first two days when the PPP loan portal re-opens;
• Match borrower inquiries to small lenders who can aid traditionally underserved communities;
• Continue setting aside dedicated hours to process and assist [the] smallest PPP lenders with their PPP loans;
Continue to strongly encourage …minority-, women-, veteran-, and military-owned lenders to apply to become PPP lenders. SBA will give full and prompt consideration to these applications to become PPP lenders consistent with program guidelines, including in cases where the lender does not meet all of the requirements listed on the updated SBA Form 3507 and
• Promote awareness of these policies and procedures via traditional media methods, SBA social media accounts and guidance to lenders before the formal opening of SBA’s loan systems.
The second PPP Loan Program commenced on Jan. 11, 2021 for the above categories and targeted borrowers, and commences on January 13th for all other eligible borrowers. The SBA points out in its guidance that “…minority, underserved, veteran, and women-owned businesses that encounter difficulties in obtaining a PPP Loan should contact their local SBA district office for assistance. A link on how to find an office near you can be found via www.sba.gov/local-assistance.” The second PPP Loan Program will end on March 31, 2021. Those borrowers applying for second draw PPP Loans may not borrower more than $2 million.
Expanded Eligibility Under the New PPP Loan Program
The Economic Aid Act expanded eligibility requirements to certain not-for-profit entities, such as 501(c)(6) entities, and entities that do not receive more than 15% of their revenue from lobbying efforts. The National Association of Realtors lobbied vigorously to have 501(c)(6) entities included because most Realtor associations are 501(c)(6) not-for-profit entities and were not able to apply for assistance under the original PPP Loan Program.
In addition, the new law provides increased loan amounts for restaurants, hotels, and other businesses designated under the NAICS Code 72 [see https://bit.ly/3oJC6sY]. These entities are permitted to apply for a greater loan amount, equal to 3.5 times the amount of eligible payroll expense rather than 2.5 times.
Additional Eligible Expenses and
Forgiveness Requirements Under PPP
The Economic Aid Act also expanded the list of eligible expenses which may be paid using PPP Loan proceeds. In addition to payroll costs, covered mortgage, rent, and utility payments provided for in the CARES Act, the following additional expenses also qualify for forgiveness:
• Payment for software, cloud computing, human resources expenses and accounting expenses.
• Costs and expenses, that are not covered by insurance, related to looting and property damage caused by public disturbances during 2020.
• Payments to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to operations.
• Personal protective equipment and costs related to compliance with state and local requirements in connection with the health and safety guidelines relating to the COVID-19 Pandemic during the period between March 1, 2020, and the end of the national emergency declaration.
Borrowers are still required to use at least 60% of the loan proceeds for payroll expenses, and up to 40% toward other eligible expenses. Borrowers may now include additional group insurance costs (e.g., vision, dental, disability or life insurance) as part of their covered “payroll costs.” The borrower is also permitted to choose the “covered period” within which to spend the loan proceeds, which can be any length between eight and 24 weeks after origination of the PPP Loan. Under the CARES Act, a borrower was required to pick a fixed period of either eight weeks or 24 weeks.
Second Draw PPP Loan Requirements
The SBA has issued a new form for borrowers applying for a second draw (SBA Form 2483-SD – Paycheck Protection Program Second Draw Borrower Application Form). The lender is also permitted to use its own form provided it is the equivalent of the SBA’s form. A borrower must contact the original lender. Many lenders are setting up portals to accept new PPP loan applications and second draw loan requests. If the payroll information has not changed since the first PPP loan, no additional payroll documentation is required. Borrowers that received a first draw do not need to submit a new application. The loan will be processed under the existing loan number.
In order for a borrower to qualify for a second PPP Loan, there must be a 25% reduction in revenue as compared to a “comparable 2019 quarter”. The SBA has not yet explained what exactly a “comparable 2019 quarter” is. However, since the language is broad, it seems that any three-month period (or quarter) would qualify for comparison purposes.
If the borrower applies for a second PPP loan greater than $150,000, the borrower would be required to provide its lender with documentation such as tax returns, or quarterly financial statements or bank statements, if tax returns are not available. For loans under $150,000, no substantiating documentation is required. The forgiveness application process is also simplified. Additionally, for PPP loans under $150,000, the borrower only needs to submit a one-page certification form, which will soon be finalized and made available by the SBA. Similar to the first PPP, borrowers will not be required to guaranty the loan as it is fully guaranteed by the SBA.
Additional Key Aspects of the Appropriations Act
Additional Unemployment Assistance Under CAUWA
The Continued Assistance for Unemployed Workers Act of 2020 (“CAUWA”), also enacted under the Appropriations Act, modified the Pandemic Unemployment Assistance provisions enacted in the spring of 2020. Some of the notable changes include the following [see https://bit.ly/39nBZN8]:
• The Federal Pandemic Unemployment Compensation program has been extended through March 14, 2021 (from Dec. 31, 2020).
• The amount of the Pandemic Unemployment Assistance benefit has now been reduced to $300 from $600.
• Applicants applying on or after January 31st must provide documentation to substantiate their prior work experience.
• Identity confirmation procedures must be put in place by states for any applicant applying for PUA benefits.
• Applicants who receive both W-2 wages and self-employment income may apply for an additional $100 in weekly unemployment benefits, however, the states may opt to provide this added benefit.
The Pandemic Emergency Unemployment Compensation period has been increased by an additional 11 weeks for a total benefit limit of 50 weeks (increased from the 39 weeks previously approved).
The CAUWA requires states to implement a system for reporting those applicants who refuse to return to work or refuse to accept a reasonable offer without good cause.
Employee Retention Tax Credit
The Appropriations Act also extended and expands the Employee Retention Tax Credit provided for under the CARES Act. Commencing on Jan. 1, 2021 and continuing through June 30, 2021, the changes include the following:
• The ERTC is increased from 50% to 70% of qualified wages.
• Employers are required to show a year-over-year decline of gross of 20% rather than 50% and provides a safe harbor which permits employers to use prior quarter.
• The limit of wages that employees are allowed to receive a credit for is now $10,000 per employee for each quarter rather than $10,000 for the entire year.
• Eligibility is expanded to employers with 500 employees or less rather than employers with 100 employees or less.
The Hope of a New Beginning is on the Horizon
The Appropriations Act passed with broad bi-partisan support, however, in light of the recent surge in COVID-19 cases and deaths, it is likely that additional COVID-19 relief may be enacted in the coming months. With the development of vaccines comes renewed hope that we are close to turning the corner. Nevertheless, the vaccines’ limited supply is still going to require individuals to continue to be extremely careful. While there is a light at the end of the tunnel, there is still a way to go.
The Appropriations Act, and additional financial relief, will hopefully serve as a bridge to assist those most impacted in this nearly year-long and very difficult journey for the country and the world. Many have lost their jobs and businesses, and so many have lost their lives to this virus. Our thoughts and prayers continue to go out to all of those affected. We must not lose hope, we must continue to have the strength to get through this, we must continue to assist those in need and we must strive to reestablish some sort of normalcy once again.