CBIZ : Points Every Organization Should Know About the Changes to the Paycheck Protection Program

The Consolidated Appropriations Act (the Act) released at the end of December brought significant changes to the Paycheck Protection Program and may open up the door for organizations to receive additional relief from the COVID-19 pandemic.

Under the Act, the Paycheck Protection Program (PPP) received $284.5 billion in additional funding but there were some key changes to any new loans (PPP2 loans) and who can access the funding. Here are some of the key items to understand about what changed (and what didn't) under the Act.

Existing Loans

Recipients of the first round of PPP loans should be in progress with their PPP loan forgiveness applications. The Dec. 31, 2020 safe harbor for calculating headcount and 24-week Covered Period have passed. Remember that you have ten months from the end of your Covered Period to submit the PPP loan forgiveness application. There were not additional extensions granted for loan forgiveness by the Act, but there are some changes that could affect your loan forgiveness applications.

For example, clarifications were made to the types of eligible payroll expenses that initial PPP loans could cover to include group benefit insurance (dental, vision, life, disability) as eligible payroll costs. If your forgiveness application was completed without these included, you may want to resubmit.

Second Draws

The Act permits PPP loan recipients to receive a second PPP loan if qualifying parameters are met. 'Second Draw' PPP loans are available for up to $2 million for organizations that meet the following conditions:

• Have 300 or fewer employees at the time of application
• Have used or will use all of their first PPP loan funds before applying for a Second Draw PPP loan
• Be able to show at least a 25% decline in gross receipts for any 2020 quarter compared with the same quarter in 2019
• Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
• Expenditures to suppliers that are essential at the time of purchase to the recipient's current operations
• Covered operating costs, such as software and cloud computing services and accounting needs
• Covered property damage costs from vandalism or looting during public disturbances

Second Chance for First-Time Borrowers

A provision in the Act enables borrowers who received a PPP loan but returned all or part of that loan to reapply for the maximum amount available to them. The maximum PPP loan amount for all borrowers in 2021 is $2 million, down from the original maximum PPP loan amount of $10 million in previous rounds. PPP2 borrower requirements were updated from the original PPP loans, which may assuage concerns from first-time-around borrowers about whether the SBA will forgive their loans. More details on those changes to borrower eligibility and eligible expenses are below.

Loan Forgiveness

The Act clarifies that for PPP loans of $150,000 or less, the borrower will complete a simplified, one-page loan forgiveness application and not be required to submit supporting documentation. This form is still in development and should be available soon. Borrowers eligible for the streamlined application should keep supporting documentation on file in the event of further inquiry from the Small Business Administration (SBA).

Another potential relief component is that borrowers no longer will be required to deduct their Economic Injury Disaster Loan (EIDL) advance from their PPP forgiveness amount. EIDLs of $10,000 were made available for organizations that needed an immediate COVID-19 relief back when the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed. EIDL loans could be rolled into a PPP loan. A new round of EIDL loans was made available in the recent legislation.

PPP Loan Necessity Questionnaire

Organizations that received a PPP loan in 2020 should also note that PPP Loan Necessity Questionnaire was finalized by the SBA at the end of November. This document is separate and distinct from the loan forgiveness applications and applies for organizations, including not-for-profit organizations, with loans of $2 million or more. Questionnaires will be furnished by the PPP loan lender and must be returned to the lender within ten days of receipt. The Loan Necessity Questionnaire will include the following items:

• Revenue comparisons between 2019 and 2020

• The impact on business operations (both governmental and voluntary)
• Mitigation costs incurred by the business
• Liquidity assessment showing the resources available
• Questionnaire allows for borrower explanations and requires documentation for certain answers

Borrowers must perform three certifications and sign the questionnaire. It is highly recommended your legal counsel review your Loan Necessity Questionnaire before you submit the questionnaire to your lender.

Accessing PPP2 Loans

Eligibility for PPP2 loans differs slightly from the original program. Borrowers seeking first-time loans should meet the following requirements:

• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
• Sole proprietors, independent contractors, and eligible self-employed individuals
• Not-for-profits, including churches
• Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location
• Broadcast news stations, newspapers, and public broadcasting services; 501(c)(6) not-for-profit organizations; 'destination marketing' entities; and housing cooperatives are newly eligible for the PPP as well

Restricted borrowers include:

• Publicly traded companies
• Lobbying organizations
• Companies organized in or with significant operations in China or Hong Kong, and companies with board members who are residents of China
• Companies that receive a grant for shuttered venue operators
• Companies owned 20% or more by the President, Vice President, head of an Executive department, or a Member of Congress, or the spouse of such person

PPP2 Loan Terms

PPP2 borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year up to a $2 million maximum ($10 million maximum for affiliated entities and $4 million for a single corporate group). This loan amount is significantly less than the first draw of the PPP, which permitted loan amounts up to $10 million.

In an acknowledgement of the devastating impact COVID-19 had on the hospitality sector, PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, still subject to a $2 million maximum.

Eligible Expenses

As with the first PPP, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:

The Act clarifies that borrowers can include group benefit insurance (dental, vision, life, disability) as payroll costs in their calculations. Importantly, these expanded expense categories are valid for both existing and new PPP loans.

Important Dates to Note

Organizations seeking PPP2 loans will need to act quickly to take advantage of the relief. This is still a first come, first serve program so check with your PPP lender to see when they will start taking applications. The deadline to submit for PPP2 loans is March 31, 2021. Proper documentation will be needed to support your application, and as with the first round, all recipients are expected to track loan forgiveness calculations in a spreadsheet.

Questions about the program remain, and if you have specific comments for our COVID-19 capital assistance team, you can reach out them through the form here.

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