How to Navigate the Latest Small Business Relief Plan and Get a PPP Loan

The Consolidated Appropriations Act, 2021, signed into law Dec. 27, 2020, marks the third round of funding for the Paycheck Protection Program (PPP) which last ran out of funds Aug. 8, 2020.

If you were unable to secure a PPP loan during the first two rounds, new funding of $284 billion will soon be up for grabs. The new funds come with relaxed guidelines that make it easier for small businesses to obtain an original PPP loan and even allow those who received funding in Round 1 or Round 2, to secure a second draw (additional) loan this time around.

Short History of PPP Funding

The Paycheck Protection Program (PPP) loan program was created by the CARES Act with $349 billion in funding. Those funds, which were expected to last until the end of June, 2020, ran out April 16.

With some tweaks to the allocation process to provide more money to struggling small businesses, the second round of $320 billion lasted until Aug. 8, 2020, after which new PPP loan applications were no longer accepted. Until now, there has been no additional funding, although Congress has worked steadily since funding ran out to come up with additional money.

The $284 billion allocated in Round 3 will be made available through March 31, 2021, or until funds are expended. This funding round expands on the original PPP goals and guidelines even more than Round 2. The table below shows PPP funding to date.

^{Sources: H.R. 748, H.R. 266, H.R. 133}

Round 3 PPP funding in the Consolidated Appropriations Act, 2021, includes significant changes to the Paycheck Protection Program Flexibility Act of 2020, which also made significant changes to the original Paycheck Protection Program that was part of the CARES Act.

The new legislation, for example, expands permissible uses of PPP funds beyond payroll, covered utilities, and covered rent. It provides flexibility in choosing the covered period for your loan (8 or 24 weeks), and simplifies the forgiveness process for loans of $150,000 or less.

The Makeup of New PPP Funding

The new legislations provides $284 billion in new funding for the Paycheck Protection Program with $50 billion of those funds going to first-time loans to companies with 500 or fewer employees. Very small businesses will be eligible to apply for their first-time loan from a $15 billion set-aside provided they have 10 employees or less. First-time loans of up to $10 million (or 2.5 times average monthly payroll cost—whichever is lower) are available.

Small businesses with 300 or fewer employees can apply for a second draw loan if they received a loan in Round 1 or 2 and either have spent those funds or will spend them. Second draw loans are limited to $2 million (or 2.5 times average monthly payroll costs—whichever is lower).

First-Time Borrower versus Second Draw

One of the main differences with Round 3 PPP funding is the ability to obtain a second loan if you already received one in a previous round and need additional funding. Otherwise, the path you follow will likely be very similar to that of previous first-time applicants.

First-Time Borrower

If this will be your first attempt to secure a PPP loan (or you tried in the past and were turned down), you can apply for a first-time loan of up to $10 million or 2.5 times your average monthly payroll costs (for the previous year), whichever is lower. To qualify you must:

• Be a small business or nonprofit 50c (c) (3) with 500 or fewer employees or, if you are a business categorized under “Accommodation or Food Services,” such as restaurants and hotels, 500 or fewer employees per location; or
• Be a small business, 501(c) (19), veteran’s organization, or tribal business that meets SBA size standards; or
• Be a self-employed worker, independent contractor, gig worker, or sole proprietor; and
• Have been in operation on Feb. 15, 2020.

Round 3 also provides that debtors in bankruptcy are now eligible for PPP loans and the loans will be treated as administrative expenses.

Second-Draw Borrower

You can apply for a second-draw loan of up to $2 million or 2.5 times your average monthly payroll costs (for the previous year), whichever is lower, provided you already received a PPP loan and have used the funds (or plan to) and need additional funds due to the coronavirus. To be eligible you must:

• Be a small business or nonprofit 50c (c) (3), 501(c) (19), veteran’s organization, tribal business, small news organization, destination marketing organization, housing cooperative, or 501(c) (6) nonprofit with 300 or fewer employees; or
• Be a business categorized under “Accommodation or Food Services,” such as restaurants and hotels, with 300 or fewer employees per location; or
• Be a self-employed worker, independent contractor, gig worker, or sole proprietor; and
• Have been in operation on Feb. 15, 2020; and
• Have experienced at least a 25% reduction in revenues in at least one quarter in 2020 when compared to previous quarters.

The same provision that allows debtors in bankruptcy to apply for and receive a first-time PPP loan also applies to second-draw borrowers.

Newly Eligible Entities

It’s worth noting that several new types of businesses and organizations are eligible for first-time PPP loans. If your business or organization fits into any of these classifications, you may wish to consider applying for a loan in Round 3.

• 501(c) (6) nonprofit organizations to include business leagues, chambers of commerce, real estate boards, boards of trade, and professional football leagues.
• Shuttered venues including live venues, theaters, independent movie theaters, performing-arts organizations, museums, and talent representatives.
• Certain small news organizations, destination marketing organizations, and housing cooperatives.

Ineligible Entities

Some businesses and organizations are not eligible for a PPP loan. They generally fall into one of these classifications.

• Businesses whose primary activity involves lobbying.
• Businesses with 20% or more ownership by China.
• Businesses with a board member who is a resident of China.
• Entities with a shuttered venue operator grant under Section 24 of the new law.
• Publicly traded companies.
• Businesses not normally eligible by SBA guidelines unless specifically allowed by the new law.

The Application Process

Until specific guidance is provided by the Small Business Association (SBA), you can probably safely assume the process to apply for a loan (first-time or second-draw) under Round 3 will be similar to the process used in the last round.

This will involve contacting an existing SBA 7(a) lender to learn details of the application process. It is likely that you will have access to an application on the SBA website along with complete instructions on how to fill out and submit the application to an approved lender.

Gather Payroll and Records

Assuming you can fill out a loan application ahead of time, you should gather up payroll and other records as well. Based on previous PPP loan requirements you may need:

• Pertinent tax returns (2018 and 2019)
• Payroll records to help verify the amount you are requesting
• Documentation showing the legal structure of your company
• Some demonstration of how COVID-19 has impacted your business

Apply as Soon as Possible

Although the legislation calls for Round 3 PPP loan applications to be accepted through March 31, past experience suggests actual availability of funds could be much less. Recall that the first round of funding only lasted two weeks.

Be prepared, check the SBA website daily, and plan to submit your application to a qualified SBA 7 (a) lender as soon as applications are being accepted.