Paycheck Protection Program 2021
CorporateJanuary 06, 2021

Paycheck Protection Program 2021: What you need to know

H.R. 133, the Consolidated Appropriations Act of 2021 was signed into law on December 27, 2020. This bill, which is in excess of 5500 pages, among many other things, provides aid to eligible small businesses, organizations, and individuals impacted by COVID-19.

Title III of the CAA contains the "Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act", which continues the Paycheck Protection Program. The PPP was created by the CARES Act and provides forgivable loans to eligible borrowers. The CAA allocates $284.5 billion in funds for this second round of PPP loans. Loans under Round 2 are available until March 31st or until the funds are exhausted.

This round of PPP loans differs from the original PPP round in several ways. This article will look at some of the new features provided for in the CAA as well as some changes made from the original PPP loan program.

Second draw loans

The CAA allows borrowers who obtained a PPP loan under the original program and used up, or will use up the proceeds, to obtain another PPP loan. The bill refers to these as “second draw” loans.

A second draw borrower can qualify for a loan of up to the average monthly payroll costs incurred or paid during 2019 or the one year period before the loan is made multiplied by 2.5 (3.5 for restaurants, hotels, and other businesses in the accommodation and food service industries that have a NAICS code beginning with 72) or $2 million, whichever is lesser.

To qualify for the second draw loan, the borrower must have 300 employees or less and must have used or plan to use the original PPP funding.

The borrower must also show a revenue loss of at least 25 percent in gross receipts during the first, second, third, or fourth quarters of 2020 relative to the same quarter in 2019.

Changes affecting loan forgiveness

Deductibility of Loan Proceeds: The CAA provides that no amount shall be included in the gross income of an eligible recipient of a PPP loan by reason of the forgiveness of the indebtedness – thereby reversing a previous ruling by the IRS disallowing such deductibility.

Consequences of EIDL Grant:The Act also provides that for businesses that received a PPP loan and an EIDL grant, the PPP loan forgiveness will no longer be reduced by the amount of the grant.

Simplified Loan Forgiveness Form: The SBA is mandated to create a simplified one page PPP loan forgiveness application for borrowers with loans of less than $150,000.

Additional eligible expenses

The type of expenses that PPP loans can be used for was expanded to include the following:

  • Covered operating expenses – including, among others, payments for business software, cloud computing, human resources, and accounting needs.
  • Covered property damage costs – costs related to property damages, vandalism, or looting in 2020 due to public disturbances not covered by insurance.
  • Covered supplier costs – including expenditures to a supplier under a contract, purchase order, or order for goods in effect before receiving a PPP loan that were essential to the borrower's operations.
  • Covered worker protection expenditures – including operating or capital expenditures to facilitate the adaption of business activities to comply with federal, state, or local health and safety guidelines, related to COVID-19 from March 1, 2020, until the national emergency expires.

Although the loan funds may be used for these new purposes, 60% of the loan must still be used on payroll to qualify for forgiveness.

Expanding the list of eligible borrowers

501(c)(6) organizations (which include trade associations, chambers of commerce, and business leagues) are now eligible to obtain PPP loans.

(However, in addition to the eligibility requirements imposed on all new borrowers, the Act places a limit on their lobbying activities.)

The Act also adds destination marketing organizations, housing cooperatives, and news organizations as businesses that can qualify for a PPP loan.

A few other PPP changes

Selection of Covered Period for Forgiveness: Borrowers still must use the loan proceeds for a period of between 8 weeks and 24 weeks from the date of disbursement, however, they may now choose the end date of their covered period.

Payroll Costs Expanded: “Payroll costs” now includes group life, disability, vision, and dental insurance, as well as group health insurance.

Increase in Previous Loan Amount: A borrower may request an increase in a previous PPP loan if the borrower did not take the full loan amount or returned a portion of the loan as long as the borrower did not apply for forgiveness.

Next Steps

The rules for obtaining new or second draw PPP loans are far more detailed and complex than indicated in this brief summary. The statute and rules should be consulted for additional guidance. Potential borrowers may wish to obtain the advice of legal and tax experts.

Small business owners who will apply for a round 2 PPP loan — whether it is their first loan or a second draw loan — should begin gathering the records and documents they will need as part of the application process. If the small business is owned and operating as an LLC, corporation, or other statutory business entity it is important to make sure the business entity is in good standing in its formation state, and if not, to bring it back into good standing, in order to avoid delays in the application process.

How can CT help? 

CT can help you with the business entity documentation for each borrowing entity (e.g. Certificate of Good Standing, Articles of Incorporation, Articles of Organization).

Contact us by calling 1-888-606-5002 or send an email for assistance.

Sandra Feldman
Publications Attorney
Sandra (Sandy) Feldman has been with CT Corporation since 1985 and has been the Publications Attorney since 1988. Sandy stays on top of the most pressing and pertinent business entity law issues that impact CT customers of all sizes and segments.