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More COVID Relief in Sight as Congress Amends the Paycheck Protection Program

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The “Consolidated Appropriations Act, 2021” (CAA), which includes provisions designed to mitigate the ongoing economic fallout of COVID-19, became law on December 27, 2020. While most of the public’s attention is on other of the CAA ’s benefits —like direct stimulus payments, deduction expansions and tax credit modifications—the CAA revises the Paycheck Protection Program and affects other SBA Section 7(a) loans. Lenders and borrowers should be aware of these changes.

  • Draw Two. Under the CAA, more than $280 billion is available for more PPP loans. Borrowers who missed out on earlier rounds and small businesses with up to 10 employees are eligible to apply. And some borrowers will be eligible for a second PPP loan (PP2) if they qualify under modified rules, even if the SBA did not forgive their first loan. Eligible PPP2 borrowers will generally be employers with 300 or fewer employees that had gross receipts decline by at least 25 percent year over year, suffered a decline in gross receipts in one of the first three quarters of 2020 compared to the same quarter in 2019and have exhausted their original loan. Borrowers may apply for a PPP2 loan of up to $2 million, depending on payroll costs. Like with other PPP loans, lenders may in good faith rely on the borrower’s certifications for PPP2 loans.
  • Agent Zero. Just weeks after the first PPP loans were funded, “agents” for the borrowers began suing participating lenders. Typically accounting firms, these would be agents allege that they are owed fees for helping borrowers apply for a loan, even if the lender was unaware of the agent’s assistance during the application process and even without a contract between lender and agent. Courts nationwide have rejected the theory, but these claims still linger. The CAA essentially codifies the rationale courts use to dismiss these cases by making clear that PPP2 lenders “shall only be responsible for paying fees to an agent for services for which the lender directly contracts with the agent.”
  • “Keep [Forgiveness] Simple, [Please].” The CAA simplifies the forgiveness application for PPP loans under $150,000 made during the first round of the program. The law directs the SBA to develop a one-page form in which borrowers attest to the number of employees retained and an “estimate” of loan proceeds spent on payroll expenses, among a few other items.
  • A Costly Pandemic. The CAA adds new categories of “covered costs” for which PPP loan proceeds may be used and forgiven, including supplier and worker protection costs. Supplier costs are broadly defined as those “essential to the operations” of the borrower. Worker protection costs are those to adapt workplaces in response to COVID, like HVAC upgrades and physical barrier installations. Additionally, covered costs would now also include payments for property damage repair and insurance benefits.
  • Take the Deduction. Borrowers now may deduct “covered costs” paid with PPP proceeds as business expenses, even if the PPP loan is forgiven. This was not permitted under previous guidance from the Department of the Treasury.
  • 2020: What a Ride. The pandemic has affected some sectors particularly hard, like the transportation and travel industries. The CAA includes grants for the SBA to make principal and interest payments on Section 7(a) loans for borrowers in the travel and other hard-hit industries (like retail and personal care salons) for up to eight months, beginning February 2021. Other Section 7(a) borrowers may receive grants for three months of principal and interest payments.

This summary outlines just some of the CAA’s provisions. We will continue to follow implementation CAA, including new rules and forms developed by the SBA as a result.