On December 27, 2020, President Trump signed the Omnibus Appropriations Act, 2021 (“OAA”), expanding the Paycheck Protection Program (“PPP”), and providing additional economic relief related to COVID-19. Notably, the OAA provides a new round of funding to businesses that have not previously received a PPP loan, as well as a “Second Draw” PPP loan, available to businesses that have previously utilized a PPP loan. Here are some key points:
I. WHAT LOANS ARE NOW AVAILABLE UNDER THE PPP?
There are two:
- First Draw Loans – available to “Eligible Borrowers” (described below) that did not receive a PPP loan in the first round, or returned all or part of a PPP loan in the first round; and
- Second Draw Loans – available to Eligible Borrowers that have received a PPP loan in the first round.
A business is an Eligible Borrower if:
- it is not a “Disqualified Entity” (described below);
- the entity has fewer than 300 employees (in the case of a Second Draw loan), or 500 employees (in the case of a First Draw loan); and
- The entity meets the Revenue Reduction Test (Second Draw loan ONLY).
III. WHAT IS A "DISQUALIFIED ENTITY"?
SBA regulations set forth categories of Disqualified Entities. Here are some (but not all) primary examples:
- an entity primarily engaged in political or lobbying activities;
- A publicly traded entity; and;
- An entity that has a resident of China as a Director, or is 20% or more owned by an entity created or with “significant operations” in China or Hong Kong.
IV. WHAT IS THE "REVENUE REDUCTION TEST"?
For Second Draw loans ONLY, the borrower must be able to show that there has been at least a 25% reduction in gross revenues for any calendar quarter in 2020, as compared to the same calendar quarter in 2019. This test need not be met for First Draw loans.
V. WHAT IS THE MAXIMUM AMOUNT THAT CAN BE BORROWED?
- For both First and Second Draw loans, the borrower can receive the borrower’s average monthly payroll for either (i) calendar year 2019; or (ii) the one year period prior to the date on which the loan originated, multiplied by 2.5.
- Loans are subject to a maximum amount of $10 million for First Draw Loans, and $2 million for Second Draw Loans.
- Certain businesses, mainly hotels and restaurants, may use a multiple of 3.5, making them eligible for a larger loan.
VI. HOW MAY PPP FUNDS BE USED?
The OAA expands the list of qualified expenses for which PPP funds may be used. Thus, in addition to payroll, rent, utilities and mortgage interest, PPP funds may be used for:
- Covered Operations Expenses – these include software and technology services for remote operations, product/service delivery, payroll processing and others;
- Covered Supplier Costs – essential operational goods purchased under a contract in effect prior to February 15, 2020;
- Covered Worker Protection Expenses – PPE and capital improvements made after March 15, 2020 in order to comply with federal/state COVID-19 orders; and
- Covered Property Damage Costs - uninsured damages from vandalism or looting due to public disturbances during 2020.
NOTE: While the list of qualified expenses has expanded, at least 60% of the loan proceeds must still be used for payroll costs.
VII. WHAT IS THE DEADLINE FOR SUBMITTING AN APPLICATION?
March 31, 2021, or until the appropriated funds ($284 billion) runs out.
The application process is underway. Prospective borrowers should move quickly to gather up the necessary documentation and contact their lenders to ensure that applications are complete and submitted on a timely basis.
As always, we will continue to monitor for new developments, and keep you apprised. If you have any questions on eligibility, the application process or anything else regarding PPP Round 2, feel free to reach out.
For more information on PPP Round 2 and related issues, contact Ron Rolleri at ron@rollerilaw.com.
