column—entitled "New Law Expands PPP Loans and Provides Grants for Shuttered Entertainment Venues" —addresses key PPP issues.
As part of the Consolidated Appropriations Act, 2021 passed by Congress on December 21 and signed into law by President Trump on December 27, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was passed which provides a number of modifications to the existing Paycheck Protection Program, as well as authorizing a new round of PPP loans through March 31, 2021 and other relief to businesses.
The law adds to permitted uses of PPP loans (and loan forgiveness) four new categories of costs and expenses, effective back to the date of enactment of the CARES Act and thus existing PPP loans:
- “covered operations expenditures”, meaning costs for business software or cloud computing services that facilitate business operations and specified administrative activities;
- “covered property damage costs”, meaning costs related to property damage and vandalism or looting due to public disturbances occurring in 2020 not covered by insurance or other compensation;
- “covered supplier costs”, meaning expenditures to suppliers for goods that are essential and that were purchased pursuant to a contract or purchase order in effect before the covered period or, for perishable goods, in effect before or during a covered period; and
- “covered worker protection expenditures”, meaning operating or capital expenditures to adapt business facilities to comply with requirements or guidance of the Department of Health and Human Services, the CDC, or OSHA, or equivalent requirements or guidance of local or state government, beginning on or after March 1, 2020. These may include the purchase, maintenance or renovation of assets to create or expand drive-through windows, air pressure or filtration systems, physical barriers (e.g., sneeze guard), expansion of space for social distancing, health screening capabilities, and may include the purchase of approved respirators or other personal protective equipment.
The legislation mandates simplified forgiveness applications for PPP loans of $150,000 or less.
With respect to PPP loan forgiveness, Congress heard the pleas of borrowers and required that the SBA submit to Congress within 45 days after the date of enactment of the statute an audit plan for PPP loans that details policies and procedures for conducting forgiveness reviews and audits and metrics to be used to determine which loans will be audited. The SBA also must submit to Congress monthly reports on forgiveness review and audit activities, including any substantial changes in the audit plan. Because this won’t take place until the Biden administration is in office, it is unclear how these audits will be conducted until this reporting is made.
Additionally, Congress has finally addressed complaints about IRS rulings that disallow deductions of expenses funded with PPP loan proceeds. The legislation expressly reiterates that PPP loan forgiveness is excluded from gross income and states that a deduction may not be denied by reason of such exclusion. This is extended to the second round of PPP loans, EIDL advances and grants, grants for shuttered venue operators, and other specified CARES Act funding.
The new law also provides for a second round of PPP loans, generally on the same terms as the prior round, but with some changes. The maximum loan is $2 million. These second round PPP loans are limited to borrowers who took out PPP loans in 2020, who have at least a 25% reduction in gross receipts for specified quarters in 2020 compared to the same quarter in 2019, and who have 300 or fewer employees (versus 500 employees in the first round). New loans of up to $150,000 are to have a greatly simplified application. Further, if any PPP loan borrower returned its first round loan or didn’t accept the full amount, then it may be eligible for a supplemental PPP loan if it did not already have the first PPP loan forgiven. Congress is mandating that the SBA publish guidance addressing barriers to accessing capital for minority, underserved, veteran and women-owned business concerns to ensure equitable access to this new round of PPP loans and is requiring the collection of demographic date of PPP loan recipients.
The legislation defines certain permitted borrowers. There are new provisions regarding loans to farmers and ranchers, describing eligible housing cooperatives, defining seasonal employers, and expressly prohibiting publicly traded companies, lobbying businesses and companies with connections to China from receiving new PPP loans.
While the statute provides for new access to funding, it also seems to tighten loan issuance by rewriting the “hold harmless” provisions applicable to lenders. Whereas the CARES Act provided that if a lender received required documentation, then there could not be any enforcement action against such lender, the new law permits the lender to rely on such documentation but requires good faith action with respect to loan origination or forgiveness in order to clearly avoid enforcement actions. This could have a chilling effect on lenders who do not want to be challenged on their “good faith” efforts.
In addition to PPP loans, the statute addresses Economic Injury Disaster Loans. Among other provisions, the requirement that an advance under a EIDL reduce the amount of PPP loan forgiveness was eliminated, so that now a recipient of an EIDL advance and PPP loan may still receive full forgiveness of any PPP loan. Further, the SBA is required to promulgate rules to help those whose PPP loan forgiveness was already reduced by the EIDL advance.
The statue also authorizes $15 billion for grants to owners of shuttered entertainment venues, which include museums, live venues and movie theaters that are not primarily sexually oriented, and talent organizers. Applicants must make a good faith certification that the grant is necessary to support ongoing operations. The priority for these grants during the first 14 days is persons whose revenue between April 1 and December 31, 2020 is not more than 10% of its revenue in the same period in 2019 due to COVID-19; the next priority during the 2nd fourteen-day period is those businesses whose revenue is not more than 30% of 2019 revenue. Initial grants are to be equal to the lesser of 45% of a business’s gross earned revenue in 2019, or $10 million, and there are provisions for supplemental grants after April 10, 2021 of 50% of the initial grant. These grants are generally to be applied for the same costs and expenses for which PPP loans may be used, and businesses may not receive both a grant and a PPP loan.