Earlier this week US Congress passed legislation that will grant additional funds for the Payment Protection Program (PPP), Economic Injury Disaster Loans (EIDL) and other Small Business Administration (SBA) programs. While the bill awaits the President’s signature, the following provides some highlights of the legislation.
Funding for First Time PPP Borrowers
The bill will provide additional funding for first time PPP borrowers (being referred to as First Draw Loans), with an expansion of entities including 501(c)(6)s, destination marketing organizations (DMOs), housing cooperatives, newspapers, broadcasters, and radio stations. Publicly traded companies and entities receiving Shuttered Venue Operator Grants are ineligible. A few key items for these PPP loans are:
- Expands list of eligible expenses to include covered operations (software, cloud computing, and other human resources and accounting needs); property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance; covered supplier costs; and covered worker protection expenditures (PPE).
- The covered period for all first draw loans is extended to March 31, 2021, and is retroactive to the start of CARES. Borrowers may choose the end of their forgiveness covered period between 8 and 24 weeks after the loan origination.
Additional Funds for Existing PPP Borrowers
Businesses with 300 or fewer employees that have sustained a 25% drop in revenue in any quarter of 2020 when compared to the same quarter in 2019, are eligible for additional PPP funds (being referred to as Second Draw Loans):
- Businesses must have used the full amount of their first PPP loan
- Maximum loan amount is $2 million
- Maximum loan amount is 2.5 times the average monthly payroll based on the 2019 calendar year or a one year look back, capped at $2 million. NAICS 72 Businesses (Accommodations and Food Services) can receive 3.5 times average monthly payroll, capped at $2 million.
- Eligible entities must be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
When Can I Apply for a New Loan?
The SBA has 10 days following the enactment of this legislation to release information on how to apply. We do not anticipate this to occur before the first week of January. No financial institution can begin accepting applications prior to this. If you receive solicitation indicating otherwise, we encourage extreme caution. There are many COVID related scams targeting businesses.
Simplified PPP Forgiveness for Loans Under $150,0000
If you currently have a PPP loan under $150,000 we strongly encourage you to wait to apply for forgiveness until SBA has enacted the new forgiveness process. The new process will include a one-page simplified forgiveness certification for PPP loans under $150,000, with no documentation required. Please note, that while you won’t be required to submit documentation for your application, you are still required to retain documentation.
The SBA has 24 days following the enactment of this legislation to release the new application process.
EIDL (Economic Disaster Injury Loan) Advance Program
- Additional Funding – An additional $20 billion will be allocated to funding additional EIDL Advance Grant for small businesses in low-income communities.
- Forgiveness Deductions – PPP borrowers are no longer required to deduct EIDL funds from their PPP forgiveness amount. Borrowers that have already received their forgiveness, that had EIDL funds deducted will be made whole by the SBA. The SBA has 15 days from the enactment of this legislation to issue information on how the borrowers will receive repealed funds.
Payments on Existing SBA Loans
An additional $3.5 billion will be allocated to continue making principal and interest payments on some new and existing SBA loans, under the 7(a), 504 and Microloan programs, through March 31, 2021. This does not include PPP loans.
- All borrowers with qualifying loans approved by the SBA prior to the CARES Act will receive up to three months of P&I, starting in February 2021 and until the appropriated funds run out. Payments could be up to $9,000 per borrower per month. SBA loans originated after the CARES Act was enacted (3/27/2020) through January 31, 2021 will not qualify for these payments.
- After the additional three months of payments, if additional funding still remains, certain borrowers could receive up to an additional 5 months of P&I payments, also capped at $9,000 per month.
Other Changes to SBA Programs
$2 billion will be allocated to enhance the SBA’s 7(a), 504 and Microloan Programs:
- Borrower and lender fees will be waived for 7(a) and 504 loans programs.
- 7(a) loan guarantees will increase to 90% for new loans obtained through October 1, 2021.
- Extends the $1 million loan limit for SBA Express loans until October 1, 2021.
- Increases the guarantee to 75% for SBA Express loans under $350,000, obtained through October 1, 2021.
- Establishes a 504 Express Loa Program.
- Enhances the Microloan Program to supply financial and technical aid to businesses affected by the COVID-19 pandemic.
When will I know more?
We will continue to follow this legislation and will send additional details via email as we have more information. Additionally, we encourage you to check our Covid-19 resource page, as we will continue to update with the latest information.Covid-19 Resources