Economic Aid Act PPP - 2021

** Updated January 25, 2021 **

December’s $900B Economic Aid to Hard-Hit Businesses Act includes $325B for economic aid to small businesses.  Of this, $285B is earmarked for PPP funding. The program opened January 11 and expires March 31, 2021.  Both new (“First-Draw”) and repeat (“Second-Draw”) borrowers may qualify.  

The SBA’s PPP website offers links to a range of important information on applications, forgiveness and other topics.

Who is eligible: small businesses, nonprofits, independent contractors and sole proprietors.  

First-Draw Borrowers must have 500 or fewer employees (for companies in NAICS code 72, Food and Beverage, the limit is 500 employees per location).  Application here.

Second-Draw Borrowers must:

  • Have 300 or fewer employees
  • Have spent or be on track to fully spend their existing PPP loan
  • Demonstrate a 25% or greater reduction in gross receipts in at least one full quarter of 2020 compared to the same quarter in 2019 (or, if quarterly results aren’t available, for the full year 2020 versus 2019) Application here.

Loan Size: The maximum PPP loan for any business is $2M

  • As in the first round, most borrowers will qualify for PPP funding of 2.5x average monthly payroll
  • Second-draw borrowers in the hospitality industry (NAICS Code 72) are eligible for 3.5x average monthly payroll

Changes to PPP program: The structure of the PPP borrowing and forgiveness is largely similar to the 2020 program.  There are a few key differences, however:

Eligible expenses: while both PPP rounds still require that 60% of the forgiven amount be spent on payroll, the range of non-payroll spending eligible for forgiveness includes utilities, rent and mortgage interest, as before, as well as:

  • Supplier Costs: payments to suppliers that are essential to operations, made pursuant to a contract or order in effect prior to the covered period
  • Worker Protection Expenditures: operating or capital expenditures made to comply with HHS, OSHA or state requirements or guidance related to COVID-19 
  • Certain Group Insurance Payments: group life, disability, vision and dental insurance benefits
  • Operations Expenditures: software and cloud services to support business operations, product or service delivery, payroll processing, human resources, sales and billing functions or accounting
  • Property Damage Costs: property damage from vandalism or looting due to public disturbances in 2020 not covered by insurance

Covered period: recipients will be able to designate a covered period of between 8 and 24 weeks for these PPP funds, as opposed to the fixed 24-week (or, for early recipients who chose to elect it, 8-week) period required by the first round

Tax and forgiveness: for prior PPP recipients, the Economic Aid Act also made changes to or clarified certain tax and forgiveness elements which are explained below under “Other Important Changes”

Application process: As with the initial round of PPP, borrowers will apply via a participating lender.  

Second-draw borrowers are encouraged to reapply to their original lender, which should facilitate the process.  However, there is no restriction on working with a new lender (see below).

First-draw borrowers:  

  • $15B of the funding is set aside for First Draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods.
  • For this and other reasons, smaller borrowers may have a better experience with community- and minority lenders (see below).  
  • However, first-draw borrowers can apply to any authorized PPP lender

Where to apply: Borrowers should consult their banks, community lenders or local CDFIs, as well as online lending platforms.

The SBA offers a Lender Match tool to help in finding an authorized PPP lender. 

For NYC-based companies, this list covers local Community Development Financial Institutions (CDFIs) participating in the PPP program

The following online lenders allow clients to create an application for submission to authorized PPP lenders as available.  These include Boefly, Lendio, Nav, Fundbox.

Other important changes: Prior PPP recipients should be aware of these other important developments:

  • Deductibility of forgiven expenses: the Act reversed the earlier Treasury guidance to clarify that payroll and operating expenses eligible for forgiveness will also be deductible for tax purposes.

  • Employee Retention Tax Credit (ERTC) changes and eligibility: The Act also clarified that PPP recipients may be retroactively eligible for ERTC on payroll costs not covered by PPP.  The ERTC grants refundable tax credits to employers who retain employees despite financial hardship.  In addition, the Act makes the following changes for the period January 1- June 30, 2021:

    • Increases the credit from 50% to 70% of qualified wages
    • Expands eligibility to companies experiencing a 20% decline in year-over-year gross receipts (down from 50%)
    • Increases the per-employee wages eligible for credit from $10K per year to $10K per quarter
    • Allows new employers who were not in existence for all of 2019 to be able to claim the credit

  • EIDL Advance no longer reduces forgiveness: borrowers will not longer need to subtract the amount of any EIDL advance from the PPP forgiveness amount, meaning that both the PPP and EIDL advance can effectively be forgiven if requirements are met

  • Simplified forgiveness application (for loans of $150K or less): The SBA will prepare a new, 1-page application for full forgiveness based on borrower certification.  We would expect this to be similar to the Form-3508S application issued earlier.