Affected Small Business, Nonprofit, and Site Economic Aid Act Provides Additional Funding to Small Businesses Under Paycheck Protection Program | Nelson Mullins Riley & Scarborough LLP
In response to the continued market disruption and economic impact of the COVID-19 pandemic, Congress passed the Economic Assistance to Small Businesses, Nonprofit Organizations and Hard-Affected Sites Act, or the Act, December 21, 2020 as part of the Consolidated Credit Act 2021, which provides additional financing to small businesses under the Paycheck Protection Program, or PPP, allows eligible borrowers to receive a second loan, simplifies loan cancellation for loans less than $ 150,000, and classifies canceled PPP loans as tax deductible.
The law provides $ 284 billion in additional funding for additional PPP loans through the Small Business Administration, or SBA, and allows hardest-hit small businesses to receive a second, conditionally repayable PPP loan. To be eligible for a second drawdown, the small business must (i) have received a PPP loan; (ii) used or will use the total amount of the existing PPP loan at the latest when the second loan is disbursed; (iii) have 300 employees or less; and (iv) suffered a 25% loss of revenue in a full quarter of 2020, compared to that same quarter in 2019.
The maximum second draw loan under the Act is the lesser of $ 2,000,000 or:
- For non-seasonal employers, the average total monthly salary cost payment for either, as determined by the borrower, (i) the one-year period prior to the loan date or (ii) the 2019 calendar year, multiplied by 2.5.
- For seasonal employers, the total average monthly social security charges incurred or paid by the borrower for any 12-week period between February 15, 2019 and February 15, 2020 at the borrower’s choice, multiplied by 2.5.
- For an entity assigned a North American Industry Classification System code starting with 72 (accommodation and food services), the average total monthly payment for salary costs, as determined by the borrower, (i) the period of one year before the date of the loan or (ii) the calendar year 2019, multiplied by 3.5.
Businesses are only allowed to receive a second PPP loan draw. In addition, the law specifies that a business or organization that was not in operation on February 15, 2020 is not eligible for a loan, as is a person or business that receives a grant under the grants for operators of closed sites. Listed companies and entities affiliated with the People’s Republic of China are not eligible for a new PPP loan.
The Act expands eligible expenses for existing loans and second-draw loans to include:
- group life insurance, disability insurance, vision or dental insurance;
- payment for any business software or cloud computing service that facilitates business operations;
- costs related to property damage due to vandalism or looting due to public unrest in 2020, the expenses of which were not covered by insurance;
- supplier costs essential for operation or incurred under a contract in force at the time of the PPP loan; and
- operating or capital expenses incurred to comply with requirements or guidelines issued by the Department of Health and Human Services, the Centers for Disease Control, the Occupational Safety and Health Administration or any state equivalent from March 1, 2020 until the President ends the national COVID-19 emergency (such as drive-through windows, air or filtration units, physical barriers, PPE or expansions of the outdoor space).
Changes to eligible expenses do not apply to PPP loans that were canceled prior to the date of the Act.
The law directs the SBA to issue guidelines allowing borrowers who may have received more under the PPP to modify their loans and request an increase, regardless of whether the original PPP amount has been disbursed or the lender has submitted their form. 1502 at the SBA. related to the secured loan.
In accordance with SBA guidelines to date, the law simplifies loan forgiveness application for borrowers with existing PPP loans or second-draw loans of $ 150,000 or less. The simplified one-page loan exemption request will only require the borrower to:
- a description of the number of employees the borrower has been able to retain as a result of the loan;
- the estimated amount of the covered loan spent by the borrower on staff costs;
- the total value of the loan; and
- an attestation that the borrower has accurately provided the required certification and has complied with the PPP.
The law provides that not only the amounts of canceled PPP loans should not be included in the income of the beneficiary, but that no deduction should be refused due to this exclusion from income. This paves the way for overturning an unpopular IRS ruling that states that business expenses paid using waived PPP funds cannot be counted as deductible business expenses.
Under the Act, small 501 (c) (6) organizations will also be eligible, provided they are not lobbying organizations and have 300 or fewer employees, and certain destination marketing organizations to Nonprofits engaged in the marketing and promotion of communities or facilities for leisure travelers will also be eligible. In addition, the law provides for set-aside contracts for small businesses with 50 or fewer employees and underserved communities, including community development finance institutions, credit unions, small community banks, minority depositories, lenders. of agricultural services and the Minority Business Development Agency. The law also provides funding for independent live theater operators affected by COVID-19 stay-at-home orders as part of grants for closed-theater operators.