Many health care providers have already taken advantage of the significant funds that the federal government has distributed over the past year to assist businesses during the pandemic. For any small businesses that have not yet applied for a Paycheck Protection Program (“PPP”) loan through the Small Business Administration (“SBA”) – and for a certain limited number of small businesses who are eligible for a second draw – there’s still time. On Tuesday, March 30, President Biden signed an extension for the SBA’s PPP loans, moving the deadline to apply for a PPP loan from March 31, 2021, to May 31, 2021, and extending the period for authorizing the PPP loans through June 30, 2021.
PPP loans, originally introduced by the CARES Act in April 2020, are government-backed, low-interest (1%) private loans for which certain eligible small businesses may apply. PPP loan funds may be used to assist with payroll, rent, utilities, and other eligible expenses (1) , and mature after two years (if issued before June 5, 2020) or five years (if issued after June 5, 2020), though it is anticipated that most PPP loans will be partially or fully forgiven if the loan recipient complies with loan forgiveness terms. The primary forgiveness requirement is for the loan recipient to maintain employee and compensation levels during the 8–24-week covered period following the loan disbursement.
Since the CARES Act became law, PPP loan eligibility requirements and application periods have been modified multiple times. Most recently (and in addition to last Tuesday’s application period extension), the American Rescue Plan Act of 2021 expanded eligibility for PPP loans to include certain types of non-profit, tax exempt organizations.
Currently, first draw PPP loans are available to the following businesses, if they have been affected by COVID-19: (i) sole proprietorships, independent contractors, and individuals who are self-employed; (ii) certain small businesses that meet the SBA’s size standards (2); (iii) certain 501(c)(3) and 501(c)(19) non-profits and tribal business concerns; and (iv) businesses in the accommodations and food services industries that have more than one physical location but employ less than 500 individuals per location. Businesses may apply for a second PPP loan if they will have used all funds from their first PPP loan by the time they receive the second PPP loan, employ less than 300 individuals, and have experienced a decline in gross receipts of at least twenty-five percent (25%) in any quarter of 2020 compared to the same quarter in 2019. Businesses interested in applying for a first or second PPP loan should visit the SBA website to be matched with a lender and to download and begin preparing borrower application forms.
Practice Tips for PPP loan recipients:
Any entity that receives PPP funds should keep diligent and detailed documentation on how the funds are used and should focus spending on “eligible expenses” to maximize the percentage of the PPP loan that is ultimately forgiven. As mentioned above, the terms around the PPP loan eligibility requirements and loan forgiveness requirements have been modified multiple times, so business entities should be careful to revisit the SBA PPP loan requirements regularly to ensure they are updated on the current definition of an “eligible expense.” PPP loan recipients should also carefully consider PPP loan forgiveness requirements before making any change in employee retention or compensation levels. In the event of an employee or compensation change – document, document, document.
The attorneys at Chilivis Grubman have experience working with small businesses on their day-to-day operations, including addressing both corporate and legal concerns. If you need assistance with such a matter, please contact us today.
- Note that currently, loan recipients must spend at least 60% of the loan on employee payroll costs to qualify for loan forgiveness, however this percentage has been modified over time, and PPP loan recipients should revisit and track the correct minimum percentage to be spent on payroll costs during their applicable covered period.
- Small business size regulations can be found at 13 CFR Ch. 1, Pt 121, et seq.