Payroll Protection Program Update: Congress Passes Second Stimulus Bill That Includes Second Draw P3 Loans | FordHarrison
The CARES Act created the Paycheck Protection Program (“PPP”), which amended the Small Business Act (“SBA”) to provide short-term loans to businesses with less than 500 employees and other businesses (such as those of accommodation and catering services). Industry). Such loans may be eligible for full discount if they are used for payroll and other business expenses and if all other legal requirements are met. Now Congress has passed a second stimulus bill called the Coronavirus Response and Relief Supplemental Appropriations Act, which is on President Trump’s desk for signature. The bill, among other things, creates a second PPP loan called the PPP Second Draw Loan for smaller and harder-hit businesses. Below is an overview of the terms of the PPP Second Draw loan.
Paycheque Protection Program Second Draw Loans
- In order to receive a second PPP loan draw, eligible entities must: (1) employ a maximum of 300 employees; (2) have used or will use the full amount of their first PPP; and (3) demonstrate a reduction of at least 25% in gross receipts during the first, second or third quarter of 2020 compared to the same quarter of 2019. Applications submitted on or after January 1, 2021 are eligible to use the receipts gross for the fourth quarter of 2020.
- In general, borrowers can receive a loan amount of up to 2.5 times the average monthly salary costs in the year before the loan or in the calendar year.
- Entities in industries assigned to NAICS code 72 (accommodation and food services) can receive loans up to 3.5 times average monthly salary costs.
- No loan can exceed $ 2 million.
- For loans not exceeding $ 150,000, the entity may submit a certificate attesting that the entity meets the requirements for loss of income no later than the date on which the entity submits its request for forgiveness of the loan and nonprofits and veterans can use the gross receipts to calculate their lost revenue standard.
Additional eligible expenses
Makes the following authorized expenses and forgivable uses for Paycheck Protection Program funds:
- Covered operating expenses. Payment for any software, cloud computing and other human resource and accounting needs.
- Covered property damage costs. Costs related to material damage due to public disturbances occurring during the year 2020 which are not covered by insurance.
- Supplier costs covered. Expenses to a supplier under a contract, purchase order or order for goods in effect before the loan was taken out and which are essential to the operations of the recipient at the time the expenditure was made. Supplier costs for perishables may be incurred before or during the term of the loan.
- Covered worker protection expenses. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidelines related to COVID-19 during the period between March 1, 2020 and end of the national emergency declaration.
- Borrowers on a second-draw PPP loan would be eligible for a loan forgiveness equal to the sum of their salary costs, plus mortgage, rent and utility payments covered, operating expenses covered, maintenance costs. covered property damage, covered supplier costs and covered work protection expenses incurred during the covered period (the borrower can choose between 8 and 24 weeks after origination).
- The 60/40 cost split between salary and non-salary costs in order to receive a full discount will continue to apply.
Application of employee-based exemption
- Extends existing safe harbor on the reinstatement of FTEs and wages and salaries. Specifically, applies the rule of reducing loan forgiveness for the borrower, reducing the number of retained employees and reducing employee salaries by more than 25%.