ARA provides PPP summary and list of changes

Jan. 14, 2021

The following summary is based on information from the Small Business Administration (SBA) and provides information on changes to the Paycheck Protection Program (PPP) included in H.R. 133, The Consolidated Appropriations Act, 2021. The American Rental Association (ARA) is urging members to consult with their accountants, legal advisors and lending institutions regarding specific questions related to both first and second draw PPP loans and PPP loan forgiveness as well as any tax issues related to PPP loans.

Loan details

PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive any PPP loans if all employee retention criteria are met and the funds are used for eligible expenses.

• PPP loans have an interest rate of 1 percent.

• Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.

• Loan payments will be deferred for borrowers who apply for loan forgiveness until the SBA remits the borrower’s loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness — either eight weeks or 24 weeks.

• No collateral or personal guarantees are required.

• Neither the government nor lenders will charge small businesses any fees.

Changes to the Paycheck Protection Program

• Borrowers who have already received one PPP loan will be allowed to apply for a second draw of PPP funds.

• Eligibility for a second draw requires a borrower to have 300 or fewer employees and be able to demonstrate a 25 percent reduction in 2020 gross revenues over a comparable period in 2019.

• Loans will be limited to 2.5 times average payroll cost with a cap of $2 million on Second Draw PPP loans.

• If you received an Economic Injury Disaster Loan (EIDL) emergency grant you will not have to deduct that amount from your PPP forgiveness amount.

• Expenses paid using PPP funds are now deductible for federal income tax purposes.

PPP second draw loans

The Paycheck Protection Program now allows certain eligible borrowers that previously received a PPP loan to apply for a second draw PPP loan with the same general loan terms as their first draw PPP loan. Second draw PPP loans can be used to help fund payroll costs, including benefits. Funds also can be used to pay for mortgage interest, rent, utilities, worker protection costs related to the coronavirus (COVID-19), uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. Full forgiveness terms second draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the eight- to 24-week covered period following loan disbursement:

• Employee and compensation levels are maintained in the same manner as required for the first draw PPP loan.

• The loan proceeds are spent on payroll costs and other eligible expenses.

• At least 60 percent of the proceeds are spent on payroll costs.

• A borrower is generally eligible for a second draw PPP loan if the borrower:

  • Has 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 percent reduction in gross receipts between comparable quarters in 2019 and 2020.

• Maximum loan amount and increased assistance for accommodation and food services businesses:

  • For most borrowers, the maximum loan amount of a second draw PPP loan is 2.5x average monthly 2019 or 2020 payroll costs up to $2 million.

  • For borrowers in the accommodation and food services sector the maximum loan amount for a second draw PPP loan is 3.5x average monthly 2019 or 2020 payroll costs up to $2 million.

  • Most ARA members will not be eligible for the 3.5x provision.

How and when to apply

Borrowers can apply for a second draw PPP Loan until March 31, 2021, through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. All second draw PPP loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at sba.gov. An application for a PPP second draw loan is available by clicking here.

SBA, in consultation with the U.S. Treasury Department, opened the PPP loan portal on Jan. 11, 2021. The PPP loan portal system initially only accepted first draw PPP loan applications from participating community financial institutions, which include community development financial institutions (CDFIs), minority depository institutions (MDIs), certified development companies (CDCs) and microloan intermediaries.

On Jan. 13 — to promote access for smaller lenders and their customers — SBA initially only began accepting second draw PPP loan applications from community financial institutions.

On Jan. 15, 2021, at 9 a.m. Eastern time, the loan portal will open to PPP-eligible lenders with $1 billion or less in assets for first and second draw applications.

On Jan. 19, the portal will fully open to all participating PPP lenders to submit first and second draw loan applications to SBA.

Visit sba.gov or treasury.gov for more information and details, including comprehensive program rules.