Paycheck Protection Program Makes 60,000 New Business Loans

Revived PPP features new eligibility and forgiveness requirements.

January 21, 2021

WASHINGTON—The Small Business Administration has reopened the Paycheck Protection Program to all eligible lenders, and experts say the guidance about PPP loans is clearer this time around.

During the first week of the newly opened PPP, some 60,000 loans were extended, totaling $5 billion, reports. According to a U.S. Census Bureau survey, one-third of small business respondents surveyed January 4-10 expressed the need for financial assistance, up from 25% in November. So far, most new PPP loans have been under $20,000 for first-time borrowers and below $75,000 for second-time borrowers. During the program’s debut in April, loans initially averaged $206,000 but dropped to $101,000 on average at the close of the program in August.

The PPP features new eligibility and forgiveness requirements, and the language is more complex, requiring lenders and borrowers to be more diligent in understanding how it applies to them and their situation, Business Insider reports.

"The SBA has learned quite a bit since the first round and should bring more clarity to the process this time," said Greg Ott, CEO of Nav, a U.S. fintech company. "A larger group of participating lenders in round two will also be beneficial for a smoother rollout."

The new program includes several changes. Eligible entities now include businesses, some nonprofit organizations, veterans' organizations, tribal businesses, housing cooperatives, self-employed individuals, sole proprietors, independent contractors, news organizations and small agricultural cooperatives.

"This eligibility approach is much more targeted at small businesses compared to round one, which saw many large public companies participate," Ott said. "Hopefully, this means more smaller businesses who are in dire need will get the money they need to survive."

As reported in the NACS Daily, previous PPP borrowers can apply for the second draw if they have 300 or fewer employees and can demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same period in 2019. There are alternative calculations for seasonal businesses and businesses started after 2019.

This time around, businesses that want their PPP loans forgiven have more options for using the money. Borrowers are still required to spend at least 60% of funds on payroll to be eligible for full forgiveness, while the remaining 40% may be used on permitted expenses like rent, utility payments, personal protective equipment and property damage that may have occurred during public unrest in 2020.

The new bill expands several critical incentives for U.S. small businesses, according to Dean Zerbe, national managing director at Alliantgroup, a national tax consulting services firm. One major change was increasing the employee-retention credit, which incentivizes companies to keep people on payroll, to 70% of wages from 50%. And instead of a maximum credit of $10,000 per employee per year, a maximum credit of $10,000 per employee is available per quarter.

Most borrowers can receive up to 2.5 times their average monthly payroll costs; however, those in the accommodation or food-services sectors can receive up to 3.5 times that amount. Loans cannot be greater than $2 million.

Senate Republicans also included a provision allowing taxpayers to deduct 100% of the cost of business meals from restaurants through the end of the year, an increase from 50%, to support the restaurant industry.

The new package allocates $40 billion of PPP funding to businesses with 10 or fewer employees and to those in low- to moderate-income neighborhoods, capped at $250,000 per business entity. Of the PPP funding meant for these groups, $15 billion will be accessible through community financial institutions and another $15 billion through insured depository institutions, credit unions and farm-credit-system institutions. Minority-led businesses and companies that may not have relationships with traditional lenders may also find additional resources and information on on how to access capital and loans and receive assistance.