By Andy Smetana and Teri Lindquist
The Small Business Administration (SBA) recently released a flurry of new materials implementing changes to the Paycheck Protection Program (PPP). These materials provide clarifications and updates, but also introduce new changes that borrowers should note when applying for loan forgiveness, a loan increase, or a “second draw” PPP loan.
New Forgiveness Applications and Forgiveness Guidance
- There are three new forgiveness application forms. The simplest form, found here, is only one page long and is for loans of $150,000 or less. The updated “EZ” form for eligible borrowers is here, and the updated full forgiveness application form is here. Any borrower preparing to apply for forgiveness should contact their lender about use of these new forms.
- Borrowers can now choose a “covered period” of any length between 8 weeks and 24 weeks, measured from the date their PPP loan was disbursed. This applies for new and existing PPP loans and may be helpful for borrowers seeking to avoid a reduction in forgiveness based on the FTE reduction quotient. See the new forgiveness guidance here.
- The prior option of using the “alternative payroll covered period” has been eliminated.
- As noted in our summary of the Economic Aid Act, the permitted uses for new and existing PPP loans have been expanded, and this is reflected in the new guidance and application forms.
- Borrowers are required to apply for forgiveness for their initial PPP loan prior to or simultaneously with their application for forgiveness for the “second draw” loan, but the applications cannot be submitted on the same form.
New Guidance for PPP Re-Borrowing and Loan Increases
- Borrowers who returned or repaid all or a portion of their PPP loan before December 27, 2020, or who received a PPP loan in an amount that was less than the amount they were approved to receive, may be eligible to re-borrow the amounts previously returned or repaid or obtain a loan increase, as long as they have not previously received forgiveness as to the remainder of their original PPP loan. Guidance for these borrowers can be found here (as to eligibility requirements) and here (as to calculating the maximum loan amount).
New “Second Draw” PPP Loan Guidance
- New guidance on “second draw” loans may be found here. This includes elaboration on (1) the calculation of a borrower’s decline in “gross receipts,” which must exceed 25% in a quarter of 2020 compared to the same quarter of 2019 for a borrower to be eligible for a “second draw” loan, and (2) the supporting documentation that borrowers must provide to their SBA lender to demonstrate their revenue decline. A borrower who applies for a “second draw” loan of $150,000 or less will not need to provide supporting documentation regarding their revenue decline until they apply for forgiveness.
Businesses interested in taking advantage of new PPP opportunities should contact their SBA lender to determine next steps. Experienced counsel can also assist as needed.