The CARES Act included a federal small business loan program called the Paycheck Protection Program (PPP). The program is designed to get cash in the hands of small businesses quickly, and incentivize business owners to keep employees on payroll by offering them loan forgiveness.
In January 2021, SBA relaunched the PPP with an additional $284 billion as part of the COVID-19 Economic Relief Package. Businesses can apply for either a first PPP loan, or a “second draw” loan. To be eligible for a new PPP loan, businesses must meet the SBA size standards for their industry, and demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019. The SBA will guarantee PPP loans through March 31, 2021.
Other changes impact eligibility for initial PPP loans, the loan forgiveness process, and the tax treatment of PPP loans.
SBA released a new set of guidance and regulations on January 6, including:
On January 8, the SBA & Treasury announced that PPP will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on January 11, and Second Draw PPP Loans on January 13. The PPP will open to all participating lenders shortly thereafter.
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.
Use the PPP Application Form to apply for a PPP loan with an eligible lender.
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities. The recent legislation added operations expenses, supplier costs, worker protection expenses, and covered property damage costs to the list of eligible expenses. At least 60% of the forgiven amount must have been used for payroll).
Click here to read more about PPP loan forgiveness.
If you also received an EIDL grant, your PPP loan forgiveness will no longer be reduced by the amount of the grant.
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.
If your loan was for less than $150,000, there will be a simplified one-page application process for loan forgiveness
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).
The Treasury Department is maintaining a CARES Act “Assistance for Small Businesses” web page that contains useful links to borrower and lender information and application forms, interim final rules, and FAQs.
Economic Injury Disaster Loans (EIDLs) are lower interest loans of up to $2 million, which principle and interest deferment at the SBA Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
Due to high demand, the SBA has implemented a cap on EIDL loans of $150,000.
Those eligible are the following with 500 or fewer employees:
Small business concerns and small agricultural cooperatives that meet the applicable size standard for SBA are also eligible, as well as most private non-profits of any size.
To apply for a COVID-19 Economic Injury Disaster Loan, click here.
While the application process may seem daunting, assistance with preparing financial statements and submitting the loan application is available from the SBTDC and other partners.
Contact SBA disaster customer service: (1) By phone at 1-800-659-2955 (TTY/TDD: 1-800-877-8339); or (2) via email at firstname.lastname@example.org
The year-end COVID-19 Economic Relief Act provides additional funding for targeted $10,000 grants through the EIDL Advance program. Those eligible are entities that:
The new legislation also eliminates the requirement that PPP borrowers deduct the amount of the EIDL Advance from their PPP forgiveness amount. This can be retroactively applied to PPP loans before, on or after the December 2020 legislation.
How to Apply
SBA expects the application portal to be ready by January 17, 2021.
The law creates a new $15 billion grant program for eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives that have experienced at least a 25% drop in revenue.
Grants are equal to the lesser of $10 million or 45% of gross earned revenue in 2019. Grants must be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment. If you receive a grant you may not apply for a new PPP loan.
The Express Bridge Loan Pilot Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster Loan. If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Bridge Loan.
Businesses may apply for up to $25,000. The loan will be repaid in full or in part by proceeds from the SBA EIDL loan. To find an Express Bridge Loan Lender, see SBA’s Lender Match Tool or contact the NC SBA District Office.
The new law resumes the government payment of monthly principal and interest on small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. Borrowers with loans approved by the SBA prior to the CARES Act will receive an additional three months of payments beginning in February of 2021. Those payments will be capped at $9,000 per borrower per month.
After that, certain borrower will receive an additional five months of payments, including: borrowers with SBA microloans or 7(a) Community Advantage loans or borrowers with any 7(a) or 504 loan in hard hit sectors.
New SBA loans made or approved between December 22, 2020 and September 30, 2021 will receive six months of government payment of principal and interest, also capped at $9,000 per month.
To assist borrowers that have been adversely affected by COYID-19-related economic disruptions, the U.S. Small Business Administration (SBA) is providing deferment relief to its existing borrowers on certain SBA-serviced loans (disaster home and business loans and SBA-purchased 504 debentures) through December 31, 2020. For existing SBA borrowers with loans serviced by SBA that were in "regular servicing'" status on March I, 2020, SBA is providing an automatic deferment of principal and interest. For additional details, see the SBA Procedural Notice.
Confused by the new SBA emergency loan programs? The CARES Act provides funding for the Paycheck Protection Program, modifies the existing Emergency Injury Disaster Loan (EIDL) program and provides immediate loan payment relief for current SBA 7(a) borrowers. The SBTDC’s SBA Emergency Loan Overview & Comparison publication provides an overview and comparison of the key components and eligibility requirements of these programs.