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With the renewal of the Paycheck Protection Program (PPP), eligible small businesses looking for additional financial support during the COVID-19 pandemic get another opportunity. Passed by Congress and signed into law at the end of 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 provides a new round of SBA funding, which this time totals $284 billion. However, there are some changes. The new PPP program has slightly different eligibility requirements than the first round did. This time, the program is designed to favor small businesses with limited access to capital, and it eliminates some previous borrowers from qualifying altogether. To help people understand the key components of the 2021 PPP, Lantern’s Michael Bourgeois recently co-led a webinar with Preston Thompson, managing director at EY, and Glendowlyn Thames, deputy commissioner of the Department of Economic and Community Development for the State of Connecticut. Read on for the key components, plus what you can do to submit your application as soon as Jan. 15 through Lantern.
Overview of 2021 Changes to PPPGuidance from the SBA on round two of the Paycheck Protection Program explains how and when eligible businesses may apply for funding plus how to apply for forgiveness later on.
When PPP Applicants Can ApplyFirst draw applicants (meaning businesses requesting a first PPP loan) get prioritized access to the funds, with community financial institutions able to make these loans starting January 11, 2021, and other lending institutions to follow shortly after that.Businesses that already received funding during the first PPP round may be able to apply for funds this time as well, but a little later than first draw applicants. Community financial institutions can start accepting applications for these second-draw loans starting on January 13, 2021, while small lenders (with less than $1 billion in assets) can start on Jan. 15. Larger lenders will start on Jan. 19. In order to qualify, second draw applicants must show at least 25% revenue declines in any 2020 quarter compared to the same quarter in 2019. A third category of loan applicants consists of borrowers who were approved for First Draw funds last year, but who returned some funding or did not accept the full amount for which they were approved. If these businesses choose to apply for more funding, they may apply for the difference between what they were approved for and what they used in their first draw, even if that amount is more than what a second draw would allow them.
Major Changes in PPP EligibilityA notable component of the new PPP program is that some entities are now excluded. “Most eligibility requirements stayed the same, but a few changes reflect some of the publicity and scrutiny around some of the participants in the first round,” said EY’s Thompson.Excluded businesses now include the following:
Businesses that may be newly eligible (subject to additional criteria, too) include the following:
- Public companies
- Businesses primarily engaged in political or lobbying activities
- Businesses with significant operations or a 20% owner or board member who resides in the People’s Republic of China or Hong Kong
- Anyone required to submit a registration statement under the Foreign Agents Registration Act
While all of the new guidelines from the SBA are helpful, they are still considered interim rules. “It’s an evolving program,” said Thompson. “We expect there could be additional changes to the program.”
- Non-profit business leagues, chambers of commerce, real estate boards, and boards of trade
- Destination marketing organizations
- Bankrupt entities
- Housing cooperatives
- News organizations
First Draw Loan RequirementsBusinesses that did not receive any PPP loans during the first round of the Paycheck Protection Program are prioritized for the January 2021 program. As in 2020, to be eligible, you still need to have been in business as of February 15, 2020. Other eligibility requirements include:
The formula used for first draw loan amounts is 2.5x average monthly payroll costs, up to $10 million. However, restaurants and hotels may borrow up to 3.5x average monthly payroll costs.
- 500 employees or less
- $10 million loan maximum
- Sole proprietors, contractors, and self-employed individuals are still eligible
Second Draw Loan RequirementsSecond draw loan eligibility requirements are slightly different than last year’s requirements, and there are lower loan limits. Thompson expects the most loan activity to come from second draw applicants in the coming weeks, so it’s important for potential borrowers to understand the program details and prepare for their applications as quickly as possible.The first major criterion is that the applicant must attest that they have or will use all of their previous PPP loan funds before the date the new loan is disbursed. To be eligible, businesses must also have 300 employees or less. Additionally, businesses have to meet gross receipts requirements, which must show a decline of at least 25% in any 2020 quarter compared to the same quarter in 2019. Fourth quarter gross receipts can be used this time. Businesses that were new in 2020 can compare gross receipts from the first quarter to either the second or third quarter of last year. “The idea here is that you really need to demonstrate that you needed the money,” Thompson explained. “That 25% litmus test is recognition that not all small businesses have been impacted.”Loan amounts are limited to 2.5x the average monthly payroll costs during either the one-year period before the loan is made or the 2019 calendar year. The maximum loan amount is $2 million.
2021 PPP ForgivenessThe SBA has offered early guidance on how the forgiveness process will work for this renewed Paycheck Protection Program round of loans. Most notably, it has less extensive requirements for forgiveness of first and second draw loans totaling $150,000 or less. The simplified forgiveness application includes a one-page form in which the borrower attests that they complied with the PPP requirements. It’s a good idea to retain documentation showing that your PPP funds were spent appropriately, but the new requirements state that you should only need to provide that proof to lenders if there is an audit in the future. In order to qualify for full forgiveness, 60% of the loan proceeds must be spent on payroll. The remaining 40% may be used on various qualifying operating expenses. The list of eligible expenses has been expanded since the first round and now includes:
Another change to forgiveness in this round is the repeal of the Economic Injury Disaster Loan (EIDL) advance deduction. EIDL advances are no longer deducted from forgiveness amounts. This rule applies retroactively, meaning that if you had an EIDL advance carved out of your previous forgiveness, you’ll be refunded.
- Business and cloud computing software
- Property damage caused by civil unrest (that’s not covered by insurance)
- Supplier costs pursuant to contracts before the loan disbursement date or for goods that are essential to the business’s operation
- Personal protective equipment (PPE) or other expenditures related to COVID-related health requirements, such as sanitation and social distancing
How to Find PPP Financing through Lantern CreditMany businesses experienced challenges in getting funding during the first round of PPP. “Last year, the largest PPP lenders prioritized customer relationships and higher loan sizes,” said Michael Bourgeois, business lead at Lantern by SoFi. “This came at the expense of underserved communities and companies without pre-existing relationships.”This time around, many lenders are either prioritizing returning PPP customers or simply not offering any PPP funds at all. However, small businesses can still find choices and gain access to the program through Lantern by SoFi. This online platform provides a way to find hundreds of funding sources for PPP loans in 2021, including SBA approved direct lenders. What’s more, applications through Lantern can be submitted to the SBA beginning on Jan. 15. Also, if you are looking to borrow through a community financial institution, one will soon join Lantern’s network. Lantern’s application can be filled out online, including on your smartphone, and there’s no cost to connect with lenders.Ready to jump-start your PPP loan application? You can with Lantern Credit today.
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About the Author
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.