Alerts and Updates
December COVID-19 Relief Bill - Second PPP Loans Available for Certain Businesses; Changes to PPP Loan Terms and Conditions
December 28, 2020
For businesses of 300 or fewer employees, there will be an opportunity to receive a second PPP loan, provided that certain other criteria are met.
On December 22, 2020, the United States Congress passed an omnibus spending bill (the December relief bill) that included significant revisions and additions to the Paycheck Protection Program (PPP) established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), and previously amended by the Paycheck Protection Program Flexibility Act (PPP Flexibility Act). President Trump signed the bill on December 27, 2020.
This is the first Alert in our series on the December relief bill.
The December relief bill offers numerous economic opportunities for businesses impacted by COVID-19. For businesses of 300 or fewer employees, there will be an opportunity to receive a second PPP loan, provided that certain other criteria are met. This Alert summarizes the criteria for the “second-draw” loans available for certain businesses.
For businesses that are not eligible for a second PPP loan, the expanded permitted uses for PPP loans (which are also eligible for forgiveness) present an opportunity to spend any remaining PPP loan funds. PPP loan borrowers will be able to use PPP funds for certain covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures, all of which will also be eligible for loan forgiveness. In addition, PPP loan borrowers will likely be able to deduct payments made using PPP loan funds from their federal income tax returns.
The Small Business Administration (SBA) is expected to release further rules and guidance in connection with the December relief bill in the coming weeks.
Second Draw Available for PPP Loans
Under the December relief bill, certain businesses that previously received PPP loan proceeds are now able to apply for a second PPP loan.
Entities that are eligible for a second PPP loan include any business concern, nonprofit organization, veterans organization, tribal business concern, certain self-employed individuals, sole proprietors, independent contractors and small agricultural cooperatives. For a business to be eligible, it must satisfy the following criteria:
- The business employs 300 or fewer employees;
- The business has used or will use the full amount of their first PPP loan; and
- The business’ gross receipts during the first, second or third quarter (or, only with respect to a borrower that submitted a PPP loan application on or after January 1, 2021, the fourth quarter) of 2020 have decreased by at least 25% compared to the borrower’s gross receipts during the same quarter in 2019.
Businesses Barred from Second PPP Loans
Certain businesses are explicitly barred from accessing a second PPP loan, including:
- Businesses that have securities listed on a national securities exchange;
- Businesses that are ineligible under 13 CFR 120.110, unless explicitly permitted to receive a PPP loan under guidance or related federal legislation;
- Businesses primarily engaged in political or lobbying activities;
- Businesses with significant operations in the People’s Republic of China or Hong Kong;
- Any person required to submit a registration statement under Section 2 of the Foreign Agents Registration Act of 1938; and
- Any business that receives a Shuttered Venue Operator Grant.
Maximum Amounts for Second PPP Loans
For businesses that are eligible to receive second PPP loans, borrowers generally may receive an amount equal to the lesser of the following:
- The amount of the borrower’s average total monthly payment for payroll costs incurred or paid during either (i) the one-year period before the loan was made or (ii) the calendar years 2019, multiplied by 2.5; or
The maximum amount for a second-draw PPP loan for seasonal employers is the lesser of:
- The amount of the average total monthly payments for payroll costs incurred or paid for any 12-week period between February 15, 2019 and February 15, 2020, multiplied by 2.5; or
The maximum amount for a second-draw PPP loan for an entity that did not exist during the one-year period preceding February 15, 2020, is the lesser of:
- The amount of (i) the sum of total monthly payments paid or incurred as of the PPP loan application date, divided by (ii) the number of months in which those costs were paid or incurred, multiplied by 2.5; or
The maximum amount for a second-draw PPP loan for a NAICS 72 entity is the lesser of:
- The amount of the average total monthly payment for payroll costs incurred or paid during the (i) one-year period before the loan was made or (ii) the calendar year 2019, multiplied by 3.5; or
Terms and Conditions for Second-Draw PPP Loans
Generally, the rules and regulations applicable to PPP loans made under the CARES Act and prior guidance apply to second-draw PPP loans. Note that eligible businesses may only receive one PPP loan (meaning that businesses may not apply for multiple PPP loans under the December relief bill). In addition, for second-draw loans of $150,000 or less, the borrower only is required to submit a certification attesting to the lost-revenue requirements summarized above and, before the date that such borrower applies for loan forgiveness, submit documentation evidencing such lost revenue.
The loan forgiveness provisions for a second PPP loan mirrors those under the CARES Act and related legislation and guidance. During the loan forgiveness period for a second PPP loan, a business may apply for forgiveness for payroll costs, rent and debt obligations, in addition to the types of payments summarized in the section “Additional Expenses Eligible for Loan Forgiveness” below.
Borrowers of a second PPP loan must follow the 60/40 rule, with 60% of forgivable payments for payroll costs and 40% for nonpayroll costs, as provided under the PPP Flexibility Act.
Funds for Smaller Businesses
The December relief bill sets aside $25 billion for businesses that meet the eligibility criteria described above and that employ 10 or fewer employees.
Changes to Existing PPP Loans, Terms and Conditions
Businesses Eligible for Increased Amount of First PPP Loan
Businesses may be able to receive an increase in funds in addition to the amount received in a first PPP loan. The December relief bill permits borrowers to increase the amount of PPP loan amounts if either (i) the borrower returned certain funds or (ii) the borrower did not accept the maximum funds offered under its successful PPP loan application. Such borrowers are eligible to receive the difference between such amounts and the maximum loan amounts previously approved by the SBA and lenders.
Borrowers who may be eligible for an increased loan amount due to any interim final rule released by the SBA may also request an increase to their loan amount, up to the maximum provided for in the relevant guidance. Businesses may request an increased amount even if the first PPP loan proceeds have been fully disbursed or their lender has submitted a Form 1502 (payment information) with respect to the PPP loan.
Streamlined Loan Forgiveness Application Process
The December relief bill provides a simplified process for approving loan forgiveness applications that significantly eases the burden on certain borrowers.
- For borrowers who received $150,000 or less in PPP loan proceeds, the SBA will automatically forgive eligible expenses if the borrower submits an attestation (in a form to be published by the SBA) that it complied with the PPP loan rules and retains (i) employment records for four years and (ii) other information relevant to the PPP loan for three years following the submission of the loan forgiveness application. The form will be only one page in length and will only request that borrowers provide (i) a description of the employees it was able to retain because of the PPP loan, (ii) the estimated amount of the loan spent on payroll costs and (iii) the total loan value.
- Borrowers who received more than $150,000 must submit the forms published in connection with the CARES Act and related rules and regulations.
Under prior guidance released by the SBA and Treasury Department, PPP loans in excess of $2,000,000 will be subject to review for compliance with the rules and guidance for the PPP loan program. As discussed in our previous Alert, this includes providing the information required by the Loan Necessity Questionnaire on Form 3509 or 3510.
Other PPP Changes and Details
Additional Expenses Eligible for Loan Forgiveness
The December relief bill broadens the types of expenses that may be forgiven under the PPP loan program. Borrowers have been permitted to use their PPP loan proceeds for payroll costs, which include costs related to the continuation of group healthcare benefits and employee salaries, and non-payroll expenses, which include payments of interest on a mortgage obligation, rent, utilities and interest on debt obligations previously incurred. These payroll/nonpayroll costs were required to be made in a 60/40 ratio.
Under the December relief bill, the nonpayroll expenses have been expanded to recognize essential expenses required by COVID-19 guidance and mandates. Borrowers may use PPP loan proceeds for the following expenses, which will also be eligible for loan forgiveness:
- Covered operations expenditures: This includes payments for any business software or cloud computing service that facilitates business operations, payroll and other recordkeeping and accounting functions;
- Covered property damage costs: This includes payments in connection with property damage, vandalism or looting due to public disturbances that occurred in 2020 and that were not covered by insurance or other compensation;
- Covered supplier costs: This includes any payment made to a supplier of goods under a contract in effect before February 15, 2020, for the supply of goods that are essential to the operations of the entity; and
- Covered worker protection expenditures: This includes any operating or capital expenditures in connection with following COVID-19 guidance issued by the federal government from March 1, 2020, through December 31, 2020 (e.g., social-distancing guidelines). This may include items such as creating a drive-through window facility, a new air filtration system, costs for health screenings and purchase of personal protective equipment (PPE). This does not include residential real property or intangible property.
The above provisions are applicable to loans made before, on or after December 27, 2020, including such expenses on applications for loan forgiveness. Therefore, borrowers may use funds delivered pursuant to a prior PPP loan but not yet spent for the above-listed items. Unfortunately for borrowers that have already had their PPP loans forgiven, the above-listed items are inapplicable (i.e., borrowers may not retroactively file another loan forgiveness application based on the above-listed items). It is unclear whether borrowers may re-file loan forgiveness applications in light of the changes summarized above. The SBA may release further guidance on that point in the coming weeks.
Group Insurance Payments Included in Payroll Costs
The December relief bill broadens the definition of “payroll costs” to include group life, disability, vision or dental insurance. The new language encompasses other group insurance policy payments beyond healthcare insurance and permits borrowers to use PPP funds for payments of dental insurance offered to employees, as one example. This provision applies to PPP loans applied for both before and after the enactment of the December relief bill.
Loan Forgiveness Period
Under the PPP Flexibility Act, borrowers were provided with a “covered period” of the earlier of (i) 24 weeks after receiving the first disbursement of their PPP loan or (ii) December 31, 2020. In subsequent guidance issued by the SBA, borrowers were permitted to apply for loan forgiveness before the expiration of the covered period. For example, a borrower is able to apply for loan forgiveness before their 24-week forgiveness period ends. However, the loan forgiveness application available on the Treasury Department’s website includes references to the full “covered period,” and not the loan forgiveness application submission date. The December relief bill clarifies that borrowers may elect a covered period, which commences on the loan origination date and ends on a date that falls between eight and 24 weeks after the date of origination. Borrowers may now effectively choose their own covered period and calculate loan forgiveness amounts based on it.
Definition of Seasonal Employer
The December relief bill defines a seasonal employer as a business that (i) operates for less than seven months in a calendar year or (ii) earned less than one-third of its receipts in any six months of the prior calendar year.
New Types of Businesses Eligible for PPP Loans
The December relief bill expands PPP loan program access to news organizations, 501(c)(6) organizations (business leagues, chambers of commerce and similar organizations) and “destination marketing organizations” (convention and visitor bureaus).
News organizations such as broadcast news businesses may now be eligible for PPP loan assistance, so long as such organizations employ no more than 500 employees at each physical location or meet the applicable SBA size standard. This provision is targeted for FCC broadcast station license holders and newspaper businesses, which may have multiple locations.
A 501(c)(6) entity will be eligible for a PPP loan if (i) the entity receives less than 15% of its receipts from lobbying, (ii) lobbying does not comprise more than 15% of the total activities of the entity, (iii) the costs of any applicable lobbying activities did not exceed $1,000,000 during the most recent tax year, and (iv) the entity employs 300 or fewer employers.
Destination Marketing Organizations
A destination marketing organization will be eligible for a PPP loan if (i) the organization receives less than 15% of its receipts from lobbying, (ii) lobbying does not comprise more than 15% of the total activities of the organization, (iii) the costs of any applicable lobbying activities did not exceed $1,000,000 during the most recent tax year, (iv) the organization employs 300 or fewer employers, and (v) the organization is exempt under Internal Revenue Code Section 501(a) or a quasi-government entity or political subdivision of a state or local government.
Limitations and Exclusions
Lobbying a Prohibited Use of PPP Loan Proceeds
Borrowers may not use any of their PPP loan proceeds for lobbying activities, as set forth in the Lobbying Disclosure Act of 1995.
Conflicts of Interest
Under the December relief bill, the president, vice president, head of an executive branch department or member of Congress (as well as their spouse, child, son-in-law or daughter-in-law) must disclose their status when applying for a PPP loan or 7(a) loan if such person holds a controlling interest, either directly or indirectly, in the borrower.
New PPP Borrower Exclusions
Borrowers that (i) were not in operation on February 15, 2020, or (ii) received Shuttered Venue Operator Grants are not eligible to apply for and receive PPP loans.
Eligible Entities in Bankruptcy Proceedings
The December relief bill amends the federal bankruptcy statutes to permit debtors or trustees to obtain a PPP loan. The applicable court must approve a PPP loan to any such debtor and requires any PPP loan to be given a superpriority claim in the bankruptcy process. Note that the bankruptcy court must approve such PPP loans and that such loan will be given a superpriority claim in the bankruptcy process.
PPP Loan Tax Deductions
According to prior guidance, the Treasury Department stated that the expenses paid with PPP loan funds would not be deductible for federal income tax purposes to avoid “double dipping.” The December relief bill reverses that guidance and permits expenses paid with PPP loan funds to be deductible. The Internal Revenue Service will likely publish further guidance on the deductibility of PPP expenditures in the coming weeks.
Economic Injury Disaster Loan Grants
The December relief bill provides for an additional $20 billion in Economic Injury Disaster Loan (EIDL) grants, administered by the SBA. In addition, businesses in low-income comminutes as provided under the CARES Act may be able to receive additional EIDL funding.
The covered period for EIDL grants has been extended to December 31, 2021.
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Duane Morris has created a COVID-19 Strategy Team to help organizations plan, respond to and address this fast-moving situation. Contact your Duane Morris attorney for more information. Prior Alerts on the topic are available on the team’s webpage.
For More Information
If you have any questions about this Alert, please contact Nanette C. Heide, Stephen Morrissey, Mark Zhuang, any member of the COVID-19 Strategy Team or the attorney in the firm with whom you are regularly in contact.
 For businesses that have multiple locations, no more than 300 employees may be employed at each location.
 If the business was not operating during the first or second quarter of 2019, but was operating during the third and fourth quarter of 2019, the business may use the third and fourth quarter results in comparison to its 2020 results. If the business was not operating in the first, second or third quarters of 2019, but was operating during the fourth quarter of 2019, the business may use the 2020 fourth quarter results compared to its 2019 fourth quarter. If the entity was not in business in 2019, but was in operation by February 15, 2020, the entity may use its first quarter 2020 results compared to its second or third 2019 quarter results (or, with the case of an entity that applies of or after January 1, 2021, the fourth quarter of 2020 may be used).
 Ineligible businesses in 13 CFR 120.110 include entities such as life insurance companies, businesses engaged in any illegal activity, government-owned entities, among others.
 This includes businesses that hold, directly or indirectly, 20% of the economic interest of a business affiliated with the People’s Republic of China or Hong Kong, as well as businesses that retain a member of its board of directors who is a resident of the People’s Republic of China.
 This is at the discretion of the PPP borrower.
 This includes “Accommodation and Food Services” business, such as restaurants, catering companies and casino hotels, among others.
 Note that the legislation explicitly does not prohibit lenders from requesting additional information in connection with loan forgiveness applications for PPP loans of $150,000 or less.
 The SBA retains the authority to audit any such loans.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.