On April 3, 2020, the Small Business Administration (SBA) began accepting loan applications from lenders under the Paycheck Protection Program (PPP), originally enacted in the CARES Act last March. Congress extended the PPP less than a month later in the Paycheck Protection Program and Health Care Enhancement Act, which increased the total lending authority of the PPP to $659 billion. On June 5, the Paycheck Protection Program Flexibility Act was enacted to give borrowers more time to obtain loan forgiveness or repay their loans. It also reduced the loan amount that must be expended on payroll expenses to obtain forgiveness and deferred payroll taxes. For information on original enactment of the PPP, please consult our memo here. To read more about the PPP and Health Care Enhancement Act, click here, and to learn more about the PPP Flexibility Act, click here.

On December 21, Congress approved another tranche of PPP funding in its Consolidated Appropriations Act, 2021 to fund the U.S. government for another fiscal year and provide additional COVID-19 relief. While President Trump threatened to veto the bill unless the stimulus payments it contained were increased from $600 to $2,000 per eligible person, he nonetheless signed the legislation into law on December 27, 2020.

What Is Available?

The new law revived the PPP program that closed on August 8, 2020 by providing another $284.45 billion in direct appropriations for eligible loans funded by the program through March 31, 2021.

Who is Eligible to Apply?

Forgivable loans will be available to new qualified borrowers. In addition, certain, smaller businesses whose prior PPP loans were forgiven will be eligible for another PPP loan or a “second draw.”

Eligible first-time borrowers include these, consistent with the preexisting PPP program:

  • Small businesses that generally have fewer than 500 employees and were in operation as of February 15, 2020. Certain businesses with more than 500 employees may also be eligible, in accordance with SBA’s size standards, which are based on average annual receipts and/or number of employees, depending on the particular industry. In addition, sole proprietors, independent contractors and eligible self-employed individuals, 501(c)(3) nonprofits, 501(c)(19) veterans’ organizations, and certain tribal business concerns are eligible, along with accommodation and food service operations (those with North American Industry Classification System (NAICS) codes starting with 72).

The new law now expands prior eligibility for first time applicants to include certain local newspapers, TV and radio stations, public broadcasters, housing cooperatives, 501(c)(6) nonprofits (excluding professional sports teams), certain direct marketing organizations, and borrowers in bankruptcy. The newspapers, TV, radio and public broadcasters cannot employee more than 500 per physical location or the applicable SBA size standard, while housing cooperatives, 501(c)(6) organizations, and direct marketing organizations cannot exceed 300 employees as either first time or second draw borrowers, discussed below. Further, the 501(c)(6) entities may not be primarily engaged in political or lobbying activities that comprise more than 15 percent of their total receipts or activities. These activities also cannot exceed $1 million during the most recent tax year of the organization that ended prior to February 15, 2020. The Act defines lobbying to include an entity that is organized for research or for engaging in advocacy in areas such as public policy or political strategy, or otherwise describes itself as a think tank in any public documents.

The bill limits eligibility by making publicly traded companies (except certain news organizations) and entities with specific ties to the People’s Republic of China or the Special Administrative Region of Hong Kong, as well as registrants under the Foreign Agents Registration Act (FARA), ineligible for PPP loans. The proceeds of any covered PPP loan also cannot be used for lobbying activities.

Eligible borrowers for a second PPP loan include:

  • Smaller, harder-hit businesses that employee not more than 300 employees, demonstrate a loss

of 25 percent of gross receipts in any quarter during 2020 compared to the same quarter in 2019, and have or will have used the full amount of their first PPP loan before this second loan is disbursed. Specifically, the bill identifies entities eligible for these “second draw” loans as “any business concern, nonprofit organization, housing cooperative, veterans’ organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative” that meets the three, above-described criteria.

What Are The Terms of PPP Loans Under the New Law?

As was the case previously, costs eligible for PPP loan forgiveness include expenditures for payroll, rent, mortgage interest and utilities. The new law makes other costs potentially forgivable for both first time and second draw borrowers, too, including:

  • Certain worker protection expenses (such as for personal protective equipment) and investments made to help a loan recipient comply with federal health and safety guidelines or any equivalent state and local guidance related to COVID-19 between March 1, 2020, and the end of the national emergency declaration.
  • Payments for current operations expenditures, including software and cloud computing, plus human resources, accounting, and supplier costs for agreements in effect prior to obtaining the loan so long as they were essential to operations when the expenditures were made.
  • Costs related to property damage due to public disturbances that occurred in 2020 that are not covered by insurance.
  • Other employer-provided group insurance benefits, including group life, disability, vision or dental insurance. (The new law specifically includes these benefits as eligible payroll)

More flexible periods of coverage for loan forgiveness are provided, at the borrower’s discretion, with chosen end dates capable of ranging from eight to 24 weeks post-loan origination. The new law also provides a simpler one-page application form for any PPP loan sought under $150,000 and includes set-aside amounts  to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and loans made by community lenders.

While “second draw” PPP loans are now capped at $2 million, staff of the U.S. Senate Committee on Small Business and Entrepreneurship confirm that first time applicants may continue to seek forgivable loans up to $10 million. Consistent with prior PPP requirements, first time and now second draw borrowers who seek forgivable loans must spend at least 60% of their PPP funds on payroll over the loan forgiveness period.  Most second draw PPP borrowers may receive a loan of up to 2.5 times the sum of their average monthly payroll costs in the year prior to the loan, or in the calendar year 2019, up to the $2 million maximum. However, the new law provides that second draw PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) may receive a loan up to 3.5 times the sum of their average monthly payroll costs, again subject to the $2 million cap.

What Tax Liabilities Do PPP Loans Carry?

  • The CARES Act excluded PPP loan forgiveness from taxable gross income, but it did not specify whether business expenses paid using the proceeds of a forgiven PPP loan would be tax deductible. These type of business expenses would normally be tax deductible. The new law clarifies that

1) the amount of a forgiven PPP loan will be exempt from gross income; and 2) business expenses paid using funds provided for a forgiven PPP loan will be tax deductible. The law states, “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.” The provisions excluding PPP loan forgiveness from gross income and providing tax deductions for business expenses paid using the proceeds of a forgiven PPP loan apply to both prior and new PPP loans.

How Do I Apply?

  • Applications may be submitted to any lending institution currently approved by the SBA or the Treasury Department. The SBA normally provides a sample application form for participating entities, available on its website Now that the law has been enacted, it is anticipated that SBA will post a revised version of that form very soon. The new law requires that SBA establish regulations to implement these new PPP provisions within 10 days of enactment, meaning on or about January 6, 2021. Sources advise that the new regulations may be posted some time before the agency begins to accept new PPP applications.

For questions or assistance in participating in the Paycheck Protection Program, please contact Kathleen Hatfield at Kathleen.Hatfield@PowersLaw.com or 202.349.4276.


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