Emergency relief for small business under the CARES Act

PPP is an expansion of the Small Business Administration's (SBA) 7(a) loan program which typically has a limit of $5 million in SBA guaranteed loans. PPP initially provided up to $659 billion in forgivable loans to small businesses to cover payroll and certain other operational costs from February 15, 2020 through December 31, 2020.

On December 27, 2020, CAA-21 expanded the PPP to provide additional forgivable loans for new borrowers (first draw loans) and allow a second round of loans for certain small businesses (second draw loans). The CAA-21 extended the PPP through March 31, 2021 and allocated an additional $284 billion for PPP loans.

On March 11, 2021, the American Rescue Plan Act of 2021 (ARPA) provided a third round of stimulus by extending and enhancing programs created under the CARES Act and CAA-21, and by creating new programs. These programs provide financing, grants, and other financial assistance across a broad swath of the economy, including small businesses, restaurants, and shuttered venue operators.

On March 30, 2021, the PPP Extension Act of 2021 was passed, extending the PPP until May 31, 2021.

Maximum Loan:

• First draw loans: Lesser of $10 million or 2.5x borrower's average monthly payroll during one-year period before date of loan. PPP sets a cap on salaries of $100,000.
• Second draw loans: Lesser of $2 million or 2.5x borrower's average monthly payroll during either (i) the one-year period before the date of loan ; (ii) calendar year 2019; or (iii) for borrowers that are not self-employed, calendar year 2020. PPP sets a cap on salaries of $100,000.

Debt Forgiveness: Up to 100% debt forgiveness if both:

• 60% of the loan proceeds are used to cover payroll costs over the covered period. Borrowers may elect to choose a covered period for loan forgiveness that is between eight and 24 weeks from loan origination.
• Employee and compensation levels are maintained.

Not more than 40% of the forgiven amount may be for non-payroll costs (for example, mortgage interest, rent, and utilities; CAA-21 also added operational expenses, certain property damage costs, supplier costs, and worker protection expenses).

Loan forgiveness will be reduced if the business:

• Reduces its full-time employee headcount.
• Decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.

Any loan amounts forgiven under the PPP will not be treated as taxable income (meaning, the amount will not be considered taxable cancellation of indebtedness income).

To avoid a reduction in the loan forgiveness amount, businesses have until December 31, 2020 to restore their full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. For loans made on or after December 27, 2020, businesses have until the last day of the covered period to restore their full-time employment and salary levels.

Second draw loan

Businesses:

• With 300 or fewer employees that were operational on February 15, 2020.
• That have expended the full amount of their first PPP loan.
• That can demonstrate at least a 25% reduction in gross receipts in the 1st, 2nd, 3rd, or 4th quarter of 2020 as compared to the same quarter in 2019.

Businesses include sole proprietors, independent contractors, non-profits, and certain self-employed individuals.

Loan eligibility is not based on the ability to repay.

Borrowers must make a good faith showing that the current economic uncertainty makes their loan request necessary to support their ongoing business operations.

If receiving a PPP loan, qualified wages counted toward PPP loan forgiveness are ineligible for Employee Retention Credit.

The business cannot use PPP funds for same expenses as other SBA loans.

Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grant (EEIG) or EIDL Advance recipients may apply for and take out a PPP loan as long as there is no duplication in the uses of funds. Under CAA-21, the proceeds from an EIDL Advance will not be deducted from the loan forgiveness amount on the PPP loan. 

PPP loans are made through an SBA-approved lender. The PPP Extension Act of 2021 extends the PPP through May 31, 2021.

CAA-21 allocated an additional $20 billion to a Targeted EIDL Advance program for eligible businesses located in low-income communities.

Permitted Use: The Targeted EIDL Advance funds can be used for working capital and normal operating expenses, such as payroll, health care benefits, rent or mortgage payments, utilities, and paying other fixed-debt payments that cannot be paid due to lost revenue.

Maximum Amount: $10,000.

Repayment: Loan advance does not have to be repaid.

Businesses that:

• Apply for an EIDL.
• Are located in a low-income community. The SBA has released an online mapping tool to help you understand if your business is located in a low-income community.
• Suffered an economic loss of more than 30% (i.e., gross receipts declined during an 8-week period between 3/2/20 and 12/31/21 as compared to an 8-week period before 3/2/20 or during 2019).
• Have 300 or fewer employees.

Businesses include sole proprietors, independent contractors, and non-profits.

If a business previously received an EIDL advance (also known as an Emergency Economy Injury Grant EIDL grant) in an amount less than $10,000, it may receive a Targeted EIDL Advance in the amount equal to the difference between $10,000 and the amount of the previously received EIDL advance.

Businesses that have already received an EIDL and/or Grant may also apply for a PPP loan.

Cannot be used for the same purpose as PPP.

EIDL applicants must wait until they receive an email invite from the SBA to apply for the Targeted EIDL Advance. All communication from SBA will be sent from an official government email account ending with @sba.gov.