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Second Stimulus Bill PPP Loan Changes and Eligibility for Second Loans

This article summarizes some of the key provisions of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venue Act (the “Act”) that impact all PPP loans, as well as those related specifically to second PPP loans.


The Paycheck Protection Program (“PPP”) was created as part of the CARES Act, passed last spring, which amended the Small Business Act (“SBA”) to provide short term loans to companies with fewer than 500 employees. On December 27, 2020, President Trump signed the 2021 Consolidated Appropriations Act, which also contained a stimulus relief bill. Part of that bill was the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venue Act (the “Act”), which made changes to all PPP loans, re-opened the PPP program for new loans, and allowed certain borrowers to obtain a second PPP loan.

This article summarizes some of the key provisions of the Act that impact all PPP loans, as well as those related specifically to second PPP loans.

Existing PPP Loans

  • Tax Treatment: Tax deductible expenses used to generate forgiveness of PPP loans may be taken to reduce taxable income.
  • Covered Period Flexibility: PPP borrowers may set the length of the “Covered Period” for purposes of PPP loan forgiveness at any length between 8 and 24 weeks.
  • EIDL Advance Does Not Affect Forgiveness: Under the CARES Act, PPP forgiveness was reduced by the amount of any Economic Injury Disaster Loan advance received. The Act repealed this provision.
  • Simplified Forgiveness: A new simplified forgiveness process for PPP loans of not more than $150,000 was established, including a one-page forgiveness application.
  • Expanded Forgivable Uses of PPP Loan Proceeds: The Act adds four additional categories of expenses that are now eligible for forgiveness under PPP loans, including covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.

Second PPP Loans for Eligible Borrowers

  • Eligibility: In order to be eligible to receive a second PPP loan, a borrower must:
      • Have 300 employees or less;
      • Have used or will use the full amount of their first PPP loan; and
      • Demonstrate at least a 25 percent reduction in gross receipts in any quarter of 2020 relative to the same 2019 quarter.
  • Second PPP Loan Terms: Borrowers may receive a loan amount ($2 million or less) up to 2.5 times average monthly payroll costs in the one year prior to the loan or the calendar year. Borrowers in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5 times average monthly payrolls costs.
  • Loan Forgiveness: Borrowers of a second PPP Loan are eligible for loan forgiveness equal to the sum of their payroll costs, covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period.

Conclusion

For small to medium-sized businesses in many sectors of the economy that are still hurting from the COVID-19 fallout, the additional financial relief, and simplified processes for requesting forgiveness of loans, are welcome developments. If you have any questions about the Act and its implications, please contact Fraser Trebilcock shareholder Paul McCord.


We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.


Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.