PPP Guidance 2021
PPP Loan Forgiveness & PPP Flexibility Act
Important Update (January 8, 2021):
As part of an end-of-year pandemic relief package, Congress has passed several changes to the Paycheck Protection Program (PPP) and created a “Second Draw” PPP for small businesses who have exhausted their initial loan. Other changes impact eligibility for initial PPP loans, the loan forgiveness process, and the tax treatment of PPP loans. On December 27th, 2020, President Trump signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) into law to provide continued assistance to individuals and businesses that have been financially impacted by the ongoing coronavirus pandemic.
PPP First Draw Loans: Overview (1.8.21)
PPP Second Draw Loans: Overview (1.8.21)
What do Borrowers Need to Know and Do?
How Do New Changes Impact My Existing PPP Loan?
Tax Treatment: The new law overturns the IRS ruling and provides that regular business expenses paid for with PPP loan proceeds shall be deductible for tax purposes (applies to past and future loans).
Expanded List of Expenses Qualifying for Forgiveness:
The list of expenses that PPP funds can be used for that qualify for loan forgiveness has been expanded to include:
Remember, it is still the case that not more than 40% of the forgiven amount can be for non-payroll costs, which may limit how much of your loan can be forgiven.
- "operations expenses" defined as payments for business software and cloud computing services and other human resources and accounting needs that facilitate business operations;
- "supplier costs" defined as payments to a supplier for goods that are essential to the operations of the borrower pursuant to a contract or purchase order in effect before the PPP loan is disbursed or with respect to perishable goods, in effect at any time;
- "worker protection expenses" defined as operating or capital expenditures to comply with public health guidance related to COVID-19, including things like drive-through windows and sneeze guards and the purchase of personal protective equipment (PPE);
- "covered property damage costs" defined as costs related to property damage or looting due to public disturbances in 2020 that are not covered by insurance or other compensation.
Loan Forgiveness Reduction: If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant.
Loan Forgiveness Period: The period for which expenses count toward loan forgiveness will begin on the date of loan origination and end on a date of your choosing that is between 8 and 24 weeks after origination.
Simplified Application: If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness.
I Exhausted My Initial PPP Loan, How Does This Help Me?
The brand new "Second Draw" program is for small businesses, non-profits, sole proprietors, and independent contractors who have exhausted their initial PPP loan. The program will make new loans through March 31, 2021, or until the new funding is exhausted.
Eligibility: You are eligible for a second draw loan if you have exhausted your first PPP loan and
- You have less than 300 employees, and
- You have experienced a greater than 25% reduction in gross receipts during the first, second, third or fourth quarter in 2020 relative to the same quarter in 2019..
Loan Amount: The maximum amount is the average monthly payroll costs for the entity during the 12 months prior to the loan or, at the election of the borrower, 2019 multiplied by 2.5 (or 3.5 for employers in the accommodation and food service industry).
Seasonal employers utilize average monthly payroll costs for a 12-week period between February 15, 2019 and February 15, 2020.
A loan may not exceed $2 million.
Loan Forgiveness: The amount of loan that can be forgiven is the lesser of:
- Costs incurred or expenditures made between the date of the origination of the loan and ending on a date of your choosing that is between 8 and 24 weeks after origination for: (a) payroll costs, (b) qualifying mortgage interest or rent obligations, (c) covered utility costs; (d) covered operations costs, (e) covered property damage, (f) covered supplier costs, and (g) covered worker protection expenditures; or
- Payroll costs for the same period divided by 0.60 (this serves as a cap on the total loan forgiveness to ensure that at least 60% of the total amount forgiven is for payroll costs).
Like original PPP loans, the amount of loan forgiveness can be reduced if the borrower has (1) reduced the number of employees or (2) employee salaries by more than 25%. However, the same safe harbors that apply to original PPP loans apply to Second Draw loans.
Set-Asides: $25 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in low-income neighborhood.
What If I Never Received a PPP Loan?
For new PPP applicants, the loan process will largely remain the same with a few major changes:
- The PPP program is open through March 31, 2021, or until the new funding is exhausted
- If you are a 501(c)(6), a local news media organization or housing cooperative, you may be newly eligible for a loan.
- You may qualify even if you took advantage of the Employee Retention Tax Credit.
- If you are a publicly traded company, you are now prohibited from receiving a loan.
- Group insurance payment can be included in your payroll costs when determining your maximum loan amount.
- If you are a seasonal employer, you have greater flexibility in picking the 12-week period between February 15, 2019 and February 15, 2020, used to determine your payroll costs and thus your maximum loan amount.
New borrowers have until the end of the covered period of their loan (up to 24 weeks after origination) to restore a reduction in their number of employees or reduced wages in order to avoid having their loan forgiveness reduced. Note: The safe harbors for when an employer cannot find qualified employees or where complying with COVID related safety measurers prevents a return to February 2020 levels of business activity and staffing remain in effect.
Set-Asides: $35 billion is set-aside for first time borrowers and $15 billion is set aside for employers with 10 or fewer employees or for loans less than $250,000 for entities located in a low-income neighborhood.
Remember, the other changes regarding eligible use of PPP funds and loan forgiveness discussed above will also apply to your new loan.
Click here to visit our original PPP loan resource page for information that may help you prepare your application, as well as information on loan forgiveness applications. Please note that applications may change with this round of funding and will be available on this page when released by the SBA.
Can I Still Apply? (Links to Application)
The SBA has tentatively set Monday, January 11th, as the date they will reopen applications for PPP funding. Please note that applications will be updated here as we receive guidance from the SBA.
To clarify which program you would be eligible for:
First Draw Borrowers are individuals who didn't receive a PPP loan in the first two rounds
First Draw Borrowers Application
Second Draw Borrowers are "borrowers that previously received a PPP loan under section 7(a)(36) of the Small Business Act ("First Draw PPP Loans") and have used or will use the full amount of the initial PPP loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP Loan"
Second Draw Borrowers Application
Any loan made under the SBA's Paycheck Protection Program must be submitted to and approved by the SBA. There is limited funding available and so all applications submitted will not be approved and funded by the SBA. Farmers State Bank is participating in the Paycheck Protection Program to help businesses impacted by the economic impact from COVID-19. However, Farmers State Bank anticipates high volume and there may be processing delays and system failures along with other issues that interfere with Farmers State Bank taking your application or submission of any application to SBA. Farmers State Bank does not represent or guarantee that it will take your application or submit any applications taken before SBA funding is no longer available or at all. By using Farmers State Bank to seek a Paycheck Protection Program loan, you agree that Farmers State Bank is not responsible or liable to you (i) if your application is not taken by Farmers State Bank or any application is not submitted to the SBA until after SBA stops approving applications, for any reason or (ii) if your inquiry or any application is not processed. You also forever release and waive any claims against Farmers State Bank concerning failure to obtain a loan. This release and waiver applies to but is not limited to any claims concerning Farmers State Bank's (i) pace, manner or systems for processing or prioritizing your inquiry or any resulting applications, or (ii) representations by Farmers State Bank regarding the application process, the Paycheck Protection Program, or availability of funds. Participation in the SBA Paycheck Protection Program is subject to confirmation and review of payroll and financial information. Farmers State Bank will not pay fees to or otherwise compensate anyone acting as an agent of the business for advising on or assisting in the preparation of the Paycheck Protection Program application or otherwise. This release and waiver supersedes any prior communication, understanding or agreement on the issues set forth herein.