Paycheck Protection Program for small businesses re-opens; new guidance issued

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MONTGOMERY, Ala. – The U.S. Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury, re-opened the Paycheck Protection Program (PPP) this week for new borrowers and certain existing PPP borrowers. To promote access to capital, only community financial institutions were be able to make First Draw PPP Loans Monday, Jan. 11 and Second Draw PPP Loans Wednesday, Jan. 13.  The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released Jan. 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.

This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021 and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan.

“The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most,” said Administrator Jovita Carranza.  “(Friday, Jan. 8’s) guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”

“The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs,” said Treasury Secretary Steven T. Mnuchin.  “This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19.  We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”

“This update from the Small Business Administration is welcome news, and I encourage small business owners across our state to take advantage of these available funds,” said Alabama Gov. Kay Ivey. “Any support that we can provide our small businesses in this challenging season is critical to our overall recovery.”

Key PPP updates include:

  • PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs
  • PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures
  • The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, destination marketing organizations, among other types of organizations
  • The PPP provides greater flexibility for seasonal employees
  • Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount
  • Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan 

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses
  • Has no more than 300 employees
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

According to Ivey’s Office, many protocols are the same. There are also important changes:

Participating Lenders: For the time being, PPP loans can generally only be made at Community Development Financial Institutions (CDFIs) or Minority Depository Institutions (MDIs). The program will open to other lenders in the near future, but the exact day has not been announced by the SBA.

Eligible Borrowers: The maximum size of a PPP loan remains the same. However, it specifically can allow 2.5 times a borrower’s average monthly payroll cost, up to $10 million. Borrowers are now labeled as either first draw or second draw borrowers. All borrowers have until March 31, 2021 to secure their first or second PPP loan.

*A first draw borrower has not previously received a PPP loan. As before, the borrower must have been operational before Feb. 15, 2020 and have no more than 500 employees. But in this round of PPP funding, some businesses previously ineligible for a PPP loan now qualify, such as 501(c)(6) organizations, housing cooperatives and direct marketing organizations. A first draw borrower can apply for a PPP loan starting Monday, Jan. 11.

*A second draw borrower has received a PPP loan and has or will use the full amount of funds for authorized uses. Importantly, a second draw borrower can have no more than 300 employees and must demonstrate a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.  A second draw borrower can apply for a PPP loan starting Wednesday, Jan. 13.

The new guidance released includes:

According to The Treasury, “The Paycheck Protection Program established by the CARES Act, is implemented by the Small Business Administration with support from the Department of the Treasury.  This program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities.

“The Paycheck Protection Program prioritizes millions of Americans employed by small businesses by authorizing up to $659 billion toward job retention and certain other expenses.

Small businesses and eligible nonprofit organizations, Veterans organizations, and Tribal businesses described in the Small Business Act, as well as individuals who are self-employed or are independent contractors, are eligible if they also meet program size standards.”

For more information, visit sba.gov/ppp or treasury.gov/cares