Consolidated Appropriations Act of 2021: Paycheck Protection Loan Program Changes
Congress passed the Consolidated Appropriations Act of 2021 on December 21, 2020, which is now waiting to be signed into law by President Trump. Certain sections of the Act provide for changes to the existing Paycheck Protection Program (PPP) that are beneficial to borrowers. The changes or clarifications generally (1) increase the uses and forgivable expenses for PPP loan proceeds, (2) clarify who can qualify as a seasonal employer and the PPP loan amount that can be received, (3) exclude any EIDL grant received from PPP forgiveness calculations, (4) simplify forgiveness filing for borrowers that received a loan of $150,000 or less and (5) ask lenders to provide for borrowers who returned all or a portion of a PPP loan to reapply for the maximum allowable amount and/or increase an existing PPP loan amount due to updated regulations. A detailed summary of the PPP changes outlined above are set forth below.
ADDITIONAL ELIGIBLE EXPENSES FOR EXISTING AND NEW PPP LOANS
The Act makes the below expenses allowable or permitted uses of PPP loan proceeds (both existing and new loans). Such expenses can now be included in forgiveness calculations for PPP loans.
- Operating Expenditures – Payment for any software, cloud computing, and other human resources and accounting needs.
- Property Damage Costs – Payments made for costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Supplier Costs – Payments to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that were essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs for perishable goods can be included both before and during the loan.
- Worker Protection Expenditure – Payments made from March 1, 2020 to the end of the declared national emergency for personal protective equipment and adaptive investments to help a loan recipient comply with federal or state COVID-19 health and safety guidelines.
ADDITIONAL PERMITTED PAYROLL COSTS FOR EXISTING PPP LOANS
The Act clarifies that employer-provided group insurance benefits, such as group life, disability, vision or dental insurance, are included in “payroll” costs for existing and new PPP loans. With these costs expressly covered by the term “payroll”, borrowers can now claim them in their forgiveness calculation.
CLARIFIES THE DEFINITION OF SEASONAL EMPLOYERS
The Act clarifies the definition of a “seasonal employer” for existing and new PPP loans to be one that (1) operates for no more than seven months in a year or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year. The clarification of this definition may allow seasonal employers that did not originally apply for a PPP loan to apply for a PPP loan in the second draw. Please see the Alert on the Second Draw PPP found here.
Additionally, the Act expands the seasonal period that can be used to determine payroll for seasonable employers to any 12-week period between February 15, 2019 and February 15, 2020. This expansion may allow seasonal employers to seek an increase to any PPP loan obtained, or allow for a greater loan value for any PPP loan in the second draw.
REPEAL OF EIDL ADVANCE DEDUCTION
The Act repeals the provisions of the CARES Act requiring PPP borrowers to deduct the amount of any EIDL advance received from their PPP forgiveness amount. The Act further states that borrowers that received an EIDL advance/grant should be made whole with respect to the EIDL grant without regard as to whether the borrower is eligible for forgiveness. Borrowers should expect further rules to guide PPP lenders and ensure borrowers are made whole if they received forgiveness already and their EIDL was deducted from the forgiveness amount.
SIMPLIFIED FORGIVENESS FOR LOANS $150,000 OR LESS
The Act creates a simplified application process for PPP loans of $150,000 or less. Borrowers of loans of $150,000 or less shall receive forgiveness if the borrower signs and submits to their PPP lender a certification that is not more than one page in length, which includes: (1) the number of employees the borrower was able to retain because of the PPP loan; (2) an estimate of the total amount of the loan spent on payroll costs; and (3) the total amount of the PPP loan. The borrower must also attest that it has accurately provided the required certification and complied with the PPP loan requirements.
Borrowers should expect the new simplified form for forgiveness from their PPP lenders within 24 days from the date the bill is signed into law. While the forgiveness process is simplified for these borrowers, it should be noted that all relevant records related to employment are required to be retained for four years and other records for a three year period.
INCREASED ABILITY FOR PPP BORROWERS TO REAPPLY OR REQUEST AN INCREASE IN LOAN AMOUNT
The Act instructs the SBA Administrator to release guidance to lenders (within 17 days of becoming law) to allow borrowers who previously returned all or part of their PPP loan to reapply for the maximum allowable amount, so long as the borrower has not yet received forgiveness. Additionally, the Act allows borrowers to seek modifications to their existing PPP loan to increase the amount of such PPP loan due to changes in the law/interim rules, such as those allowing additional costs to be included in payroll costs and/or the new calculation of seasonal employer payroll.
Borrowers should work with their PPP lender to ensure the changes important to the borrower are captured in their loan value, forgiveness amount and/or forgiveness application process. Borrowers should seek legal counsel if their PPP lender is unable to understand changes applicable to the borrower and work with the borrower with respect to such changes.