Changes made to stimulus designed to help small businesses
This far into the Covid-19 pandemic, business owners are probably familiar with, if not active participants in, the Paycheck Protection Program (PPP) stimulus initiative. What’s new for 2021 is that PPP Second Draw loan applications are being accepted. Since we previously wrote about PPP last summer, the program has some new features based on lessons from the first PPP loans administered during the start of the Covid-19 pandemic.
A few quick notes:
- To be eligible for a Second Draw PPP Loan, a borrower must (i) have received a previous PPP Loan, and will use or has used the full amount for authorized purposes, (ii) have less than 300 employees, and (iii) demonstrate at least a 25 percent reduction in gross receipts between comparable quarters in 2019 and 2020.
- The deadline for Second Draw applications has been extended to May 31, 2021.
- Companies that received PPP loans last year can apply for Second Draw loans
- Loan amounts are again based on payroll expenses
- The covered period this round is 8-24 weeks, as it was last time
Focus on small businesses
The change that seems to most clearly reflect a lesson learned from 2020 is that there is a specific pool of $25 billion intended for eligible borrowers with a maximum of 10 employees or those companies from low- to moderate-income neighborhoods requesting loans of $250,000 or less. This is intended to prevent last year’s situation in which large publicly held companies were getting PPP loans, leaving many small businesses out in the cold. Public companies have the option of going to the equity markets to raise money, which small privately owned companies do not.
Another way that the Second Draw is a help to smaller businesses is the expanded categories of expenses that loan proceeds can be used to pay. Again, lessons from 2020 seem to apply. In addition to payroll costs, benefits, mortgage interest, rent and utilities, this round will also cover:
- Worker protection costs related to Covid-19
- Uninsured property damage costs caused by looting or vandalism during 2020 (likely intended for businesses hurt by last summer’s race protests or the more recent presidential election protests)
Also, there are more generous loan amounts available to companies in the hospitality and food service sectors. (Check the NAICS website to determine if you qualify for either of those industry designations.) The maximum loan amount in these businesses is 3.5x the payroll expense, while it stays at 2.5x for other businesses.
For full forgiveness, during the 8-24 week period after receipt of funds, the employer must:
- Maintain employee and compensation levels in the same manner as required for the First Draw PPP loan.
- Spend loan proceeds on payroll costs and other eligible expenses; and
- Spend at least 60 percent of the proceeds on payroll costs.
Please be aware that the original Paycheck Protection Program is still open with funds available. If you did not receive a previous PPP loan, you may still apply under the original program.
And if you are within your grace period for last year’s PPP round and haven’t filed for forgiveness yet, now may be a good time to do that. The best bet is to contact your lender for guidance on how to complete the forms and help with the filing. And we’re here to help as well.