COVID-19: Five Key Changes to PPP Loans in the New Stimulus Package
The passage of a new coronavirus stimulus package—dubbed the Consolidated Appropriations Act, 2021 (CAA)—means a new round of funding for the Paycheck Protection Program (PPP). However, Congress made several key changes to the PPP to ensure it helps small- and mid-sized businesses when they need it most.
Here’s what you need to know about these updates.
Refresher: What is a PPP Loan?
The Paycheck Protection Program (PPP) is a federal loan program designed to help small businesses impacted by COVID-19.
Part of the CARES Act—an economic stimulus bill passed in March 2020—the PPP has distributed hundreds of billions of dollars in loans to help American employers remain in operation during the pandemic. As part of the program, borrowers can be eligible for full loan forgiveness if the funds are used on certain payroll costs, business mortgage interest payments, rent, and other criteria.
Refer to the following resource for more information on PPP loan forgiveness.
Why Did Congress Make Changes to PPP Loans?
This isn’t the first time changes have been made to the PPP. In June 2020, Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) to loosen restrictions on PPP loan access and required expenditures. Likewise, in December 2020, the U.S. Treasury Department and IRS issued guidance to clarify tax treatment on PPP loan expenses.
With that said, Congress made additional updates to the program for a few different reasons:
- First, in its original form, many large and successful companies qualified for loans and scooped up funding that could’ve gone to smaller businesses that needed money more immediately.
- Second, the original PPP excluded certain types of organizations—like 501(c)(6)s—from qualifying for funding.
- Third, the timing and scope of expenses covered by PPP loans were too narrow. In its original form, funding was provided to help employers pay for salaries and other operational expenses during the pandemic. However, there were limits to PPP loan coverage periods and costs that made it difficult for businesses to qualify.
Five Key Changes to the PPP in the New Stimulus Package
While not comprehensive, the following five changes have been made to help make the PPP more flexible and more available:
1. Changes to First-draw Participants
The PPP reopened to companies that didn’t have a chance to receive funding during the 2020 program, including a set of newly qualified groups like 501(c)(6) organizations, which include chambers of commerce and visitors’ bureaus.
The maximum loan amount for first-draw participants is $10 million, which is unchanged from the original PPP.
2. Second-draw Participants Are Now Qualified
Certain companies that already received funding during the 2020 program are now eligible to receive additional funding if needed. This is a big change from the previous round of PPP funding.
Now, businesses with prior loans can receive up to $2 million in additional funding if they meet the following three conditions:
- If they employ 300 or fewer employees;
- If they used the entire amount of their first PPP loan on or before the expected date of their second loan disbursement; and
- If they experienced a revenue reduction of 25% or higher in all or a portion of 2020 compared to 2019.
3. New Restrictions on Eligibility
Publicly traded companies and businesses run by members of Congress, the president, the vice president, and heads of executive departments are no longer eligible for PPP loans.
4. New Eligible Costs
- PPE and other worker protections and facility modifications
- Cloud computing services and other software that help facilitate business operations
- Various other expenses (see SBA.gov for more details)
5. Funding for Minority, Veteran, and Women-owned Businesses
The PPP also set aside billions of dollars for exclusive use by financial institutions that serve minority- and women-owned businesses. The SBA released a three-page guide to ensure this funding is available to the appropriate groups.
What Else Does HR Need to Know?
The program is set to remain open through the end of March 2021. If your organization needs a PPP loan, now is the time to apply.
HR should review the requirements provided by the U.S. Small Business Administration (SBA)—which administers the PPP—and work alongside leadership and accounting to access the appropriate funding that helps keep your business secure during the pandemic.
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