Economic Aid Act for the Paycheck Protection Program (PPP) 

Economic Aid Act for the Paycheck Protection Program (PPP) 

—Background—

On Dec. 27, 2020, President Trump signed the Economic Aid Act into law which included $284 billion for the Paycheck Protection Program (PPP). The legislation made several revisions to the program including changing eligibility requirements, creating a process for Second Draw loans, and adding additional qualifying expenses. This Fast Facts is intended to address questions regarding eligibility for Second Draw loans, which entities are newly eligible for PPP loans, and allowable expenditures. The first section of this Fast Facts addresses general updates to the program and information regarding First Draw PPP loans, whereas the second section addresses information on Second Draw PPP loans.

 —First Draw PPP Loan Information—

Generally, who is eligible for a PPP loan?

• A small business concern as defined by the U.S. Small Business Administration’s (SBA) size standards. Click here to determine if you meet SBA standards.
• A business concern, 501(c)(3) tax-exempt nonprofit organization, 501(c)(19) tax-exempt veterans organization, or a 31(b)(2)(C) Tribal business concern that employs at most 500 employees or the applicable size standard defined by SBA for that industry.
• Independent contractors, eligible self-employed individuals, and sole proprietors.

What types of entities are newly eligible for PPP loans?

• Housing cooperative with 300 or fewer employees
• 501(c)(6) organization with 300 or fewer employees (see specific guidelines below)
• Destination marketing organization with 300 or fewer employees (see specific guidelines below)
• News organization that is majority owned or controlled by a business that has NAICS code 511110 or 5151, or a nonprofit public broadcasting entity that is a NAICS code 511110 or 5151 trade or business, with 500 or fewer employees (or, if applicable, the SBA size standard for your industry) per location

I am a 501(c)(6) organization. Am I eligible?

To be eligible, a 501(c)(6) must also meet the following criteria:

1. Must be tax-exempt
2. Employ 300 or fewer employees
3. Lobbying activities cannot be responsible for over 15% of receipts
4. Lobbying activities cannot comprise over 15% of the entity’s total activities
5. Costs incurred for lobbying activities cannot exceed $1 million during the organization’s most recent tax year that ended prior to Feb. 15, 2020

I am a destination marketing organization. Am I eligible?

To be eligible, a destination marketing organization must also meet the following criteria:

1. Must be a 501(c)(3) and tax-exempt; or a quasi-governmental entity or political subdivision of a state/local government, including any instrumentality of those entities
2. Employ 300 or fewer employees
3. Lobbying activities cannot be responsible for over 15% of receipts
4. Lobbying activities cannot comprise over 15% of the entity’s total activities
5. Costs incurred for lobbying activities cannot exceed $1 million during the organization’s most recent tax year that ended prior to Feb. 15, 2020

What is the maximum loan a borrower can receive?

For a First Draw PPP loan, the maximum loan size a borrower can receive is the lesser of:

• 5 months of payroll (calculated using a specified payroll-based formula)
• $10 million

Note: Businesses that are part of a single Corporate Group cannot, in the aggregate, receive more than $20 million in PPP loan funds. (Information on Second Draw PPP loans is below)

What can I spend the funds on?

PPP loan funds can be spent on any of the following:

• Payroll costs
• Costs incurred for group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums
• Mortgage interest payments (excluding prepayments or principal payments)
• Rent payments
• Utility payments
• Interest payments on debt obligations incurred before Feb. 15, 2020
• Refinancing an SBA EIDL loan made between Jan. 31 and April 3, 2020
• Covered operations expenditures
  • Expenditures for any business software/cloud computing service that enables operations
  • Expenditures for the delivery of a product or service
  • Expenditures for processing/payment/tracking of payroll expenses/human resources/sales/billing functions
  • Expenditures for the accounting/tracking of supplies/inventory/records/expenses
• Covered property damage costs
  • Costs related to property damage/vandalism/looting that occurred in 2020 that weren’t covered by insurance or other compensation
• Covered supplier costs
  • Expenditures made by a borrower to a supplier of goods for goods that are essential for operations
  • Expenditures made according to an agreement that was in effect prior to the loan’s covered period or an agreement concerning perishable goods in effect at any time
• Covered worker protection expenditures:
  • Operating/capital expenditures to adapt business activities to comply with sanitation, social distancing, worker/customer safety requirements/guidance from the Department of Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), Occupational Safety and Health Administration (OSHA), or corresponding state/local government entities between March 1, 2020 and the end of the COVID-19 national emergency

Note: PPP loan funds cannot be spent on lobbying activities/expenditures or expenditures intended to influence matters before Congress, a State government, a State/Local legislature, or legislative body.

How does the SBA define payroll costs for PPP purposes?

The SBA classifies the following costs as payroll costs:

• Compensation to employees as salary, wages, commissions, or similar compensation
• Cash tips or the equivalent (based on records or good faith estimate in the absence of records)
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for separation or dismissal
• Costs incurred in providing the following employee benefits: group health care or group life, disability, vision, or dental insurance, including insurance premiums and retirement
• Payment of state/local taxes assessed on employee compensation
• For an independent contractor or sole proprietor: wages, commission, income, or net earnings from self-employment, or similar compensation

What are the terms of PPP loans?

Loans are offered with maturities of 5 years and at an interest rate of 1% and are calculated on a non-compounding, non-adjustable basis.

What do I have to do in order to qualify for loan forgiveness?

Spend at least 60% of PPP loan funds on payroll costs. Additionally, the borrower must maintain employee and compensation levels, except if there is an applicable safe harbor or exception. The borrower must also submit a loan forgiveness application to their lender within 10 months of the termination of their loan forgiveness covered period, a period which begins 8 weeks after disbursement of PPP funds and ends 24 weeks after disbursement.

—Second Draw PPP Loan Information—

What is a Second Draw Loan?

Second Draw loans are loans for borrowers who already took out a First Draw PPP loan. It is a borrower’s second PPP loan. The rules and terms for Second Draw loans are the same as those for First Draw loans, except where otherwise specified.

Who can get a Second Draw PPP loan?

There are new eligibility requirements that borrowers must meet to qualify for a Second Draw loan. Applicants must:

1. Employ 300 or fewer employees
2. Have experienced a 25% or greater revenue reduction in 2020 relative to 2019 (calculated by looking at quarterly gross receipts for one quarter in 2020 relative to the corresponding quarter in 2019). For a business in operation in all 4 quarters of 2019, if their annual receipts fell by 25% or more in 2020 relative to 2019, then they meet this requirement.
3. Have received a First Draw PPP Loan and exhausted those funds or will have exhausted those funds by the date of disbursement of the Second Draw funds. These funds must have been spent on eligible expenses under PPP rules.

A borrower that is in the Accommodation and Food Services Industry (NAICS code 72) or is an eligible news organization is limited to 300 or fewer employees per physical location. They must also meet the other criteria listed above.

Note on Affiliation Waivers: business concerns that are in the Accommodation and Food Services Industry (NAICS code 72) can use the affiliation waiver if they employ 300 or fewer employees. Eligible news organizations may apply for the affiliation waiver if they employ 300 or fewer employees per physical location. The affiliation rule helps borrowers determine which employees they must count.

Who cannot get a Second Draw PPP loan?

The following are disqualified from accessing a Second Draw loan:

• A business concern or entity primarily engaged in political/lobbying activities. This includes entities that specialize in research or advocacy on public policy/political strategy and any entity that describes itself as a think tank in public documents.
• Entities organized under the laws of the People’s Republic of China or Special Administrative Region of Hong Kong, or with other specified ties to those entities.
• Persons who are required to submit a registration statement under Section 2 of Foreign Agents Registration Act of 1938
• Person/entity receiving a grant for shuttered venue operations under section 324 of the Economic Aid Act
• Entities where the President, Vice President, head of an Executive agency, or member of Congress, or spouse of such person owns, controls, or holds at least 20% of any class of equity.
• A publicly traded company
• An entity that has already received a Second Draw Loan

What limitations are there for Second Draw loans?

There is a limitation for Corporate Groups, whereby businesses that are part of a single Corporate Group cannot, in the aggregate, receive more than $4 million in Second Draw loans.

What is the maximum amount you can get for a Second Draw loan?

Generally, loans are capped the same way they are for First Draw loans with the maximum loan size being the lesser of:

• 2.5 months of payroll
• $2 million-

However, the maximum loan size for borrowers in the Accommodation and Food Services industry (NAICS code 72) is the lesser of:

• 3.5 months of payroll
• $2 million

Note: Just as businesses from a single Corporate Group are restricted in the overall amount of PPP loans they can receive, they are also limited, in the aggregate, to a maximum of $4 million in Second Draw PPP loans.

How long do I have to apply?

The SBA can guarantee loans through March 31, 2021. However, we recommend borrowers apply as soon as possible, given the possibility that funds allocated for PPP will run out before that date.

This information should not be construed as constituting specific legal advice. It is intended to provide general information about this subject and general compliance strategies. For specific legal advice, NJBIA strongly recommends members consult with their attorney.

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