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If you were one of the small businesses squeezed out of the original PPP lending program, this week brings good news.
The Small Business Administration (“SBA”) has issued its guidelines on the ‘revamped’ Paycheck Protection Program (“PPP”) loans under the Economic Aid Act signed by the President on December 27, 2020. Under this second round (fingers and toes crossed), the SBA promises it will reach small businesses and independent contractors with the aid. No need to rehash the debacle of the first round with its race to fund and big bank customers at the trough first. Need I remind you what some of those proceeds were used for… to – um -- buy a Lamborghini in one case -- yes, that happened. Suffice it to say, it was definitely not a resounding success.
This time, though, the SBA is working to ensure the loans go to the right places. The program opened on Monday, January 11, 2021 to small community lenders first so that small businesses owned by black, indigenous, people of color, women, and companies in low-income areas have a fighting chance at securing some of the $284 billion in funds. As of January 13, 2021, companies have begun submitting applications for loans under this second round of funding.
Here’s what is different in the new guidelines:
- Companies cannot have more than 300 employees;
- No business or corporate group can get more than $20 million combined across all loans or $4 million under the second round;
- If you received a loan under the first round, you are eligible to receive a loan under the second round, provided the business lost at least 25% in any single quarter during 2020;
- Money specifically set aside for lenders under $1 billion and $10 billion in assets; and
- If you are in the Accommodation and Food Service Industry (NCIS Code 72), you can qualify for 3.5X your payroll instead of 2.5X your payroll in any other industry. This is good news for struggling restaurants who remain alive, but barely because of the virus’s renewed virulence.
Applying for second loan?
Take note, if you plan to apply for a second loan you will need to provide a bit more information including:
- 2019 tax returns;
- Quarterly income statements;
- Bank statements;
- Payroll summary report;
- Payroll tax filings (940, 990, 941); and
- Driver’s license or passport for any principal.
Changes to PPP forgiveness:
If you were among the businesses that received less than $150,000 in PPP funds during the first round, the stimulus finally delivers on the “it’s coming, it’s coming” promise to simplify the forgiveness process. There is a new short form that doesn’t require additional supporting documentation to wrap up your forgiveness.
Other good news for small business lending:
If you are thinking of buying a business or expanding the one you have, there is more good news under the Economic Aid Act - emergency enhancements to the SBA’s other lending programs. If you have an existing SMA 504, 7(a) or Microloan from the SBA, the Economic Aid Act, once again, extends the Small Business Debt Relief program (Section 112 of the original CARES Act). It defers payments of principal and interest on those loans and does the same for new loans under the program for six months. Additionally, the other emergency enhancements include the following:
- Increases the 7(a) loan guarantee program from $30 billion to $75 billion dollars in fiscal year 2021;
- Increases the 7(a) loan guarantee from 75% or 85% (depending on loan amount) to 90% of the principal, and offers reduced or no fees for either borrower or the lender;
- Increases the SBA Express loan amount from $350,000 to $1 million until October 1, 2021;
- Increases the SBA Express loan guarantee percentage from 50% to 75% of the principal for loans of $350,000 or less; and
- Temporarily eliminates fees for the 504 loan program and offers on refinancing existing loans.
There’s a lot to take in with both the PPP and small business lending changes. We’re here to assist you.
Please don’t hesitate to reach out with questions or for advice.
