Editor's Note:  SFNet will be soliciting questions over the next two weeks pertaining to the Economic Aid Act that will be addressed in an interactive Critical Conversations Webinar on February 2 at 2:00 Eastern. Please provide your questions to Michele Ocejo at mocejo@sfnet.com.

The Consolidated Appropriations Act, 2021, an omnibus stimulus and budget act that includes the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), was enacted on December 27, 2020.  The Economic Aid Act amends, extends and expands several key stimulus programs as summarized below.

Paycheck Protection Program

In addition to the enactment of the Economic Aid Act, on January 6, 2021, the SBA issued its first two interim final rules implementing many of the changes to the Paycheck Protection Program (PPP) thereunder, though significant rule-making for forgiveness and other matters remains outstanding. 

Changes arising from the new statute and guidance include the following:

• The PPP is extended through March 31, 2021.
• Re-opening the existing PPP loan program under Section 7(a)(36) of the Small Business Act (now designated as “First Draw PPP Loans”) to eligible applicants that have not previously obtained a PPP loan. Substantially the same eligibility requirements apply to First Draw PPP Loans now as applied to PPP loans borrowed at the end of the 2020 PPP loan authorization period (with 501(c)(6), housing cooperatives and certain news organizations, among others, now potentially eligible in many cases). In addition to the original $10 million per PPP Loan cap, there is a $20 million aggregate cap on the First Draw PPP Loans borrowed by any PPP borrower at any time and all other PPP borrowers in the same “corporate group” (as defined in the SBA guidance).
• Permitting a supplemental draw on the existing First Draw PPP Loans obtained in 2020 for certain existing PPP borrowers who were unable to draw the maximum amount in their first PPP loan draw due to changes in rules or that rejected or returned funds that could not be used at the time of the first draw. Further guidance from SBA on this option was released late on January 13, 2021, and remains subject to review, but the new SBA guidance did make clear that any such supplemental draw would also have to be fully used before a PPP borrower could obtain a Second Draw PPP Loan (described below).
• Establishing a Second Draw PPP Loan option for certain existing PPP borrowers who meet new size and revenue loss tests.

   

  • Most existing PPP borrowers (subject to new exclusions noted below) that (a) have used all their existing PPP loan no later than the date of disbursement of the Second Draw PPP Loan, (b) have 300 or fewer employees and (c) can demonstrate a 25% or more loss of gross revenues (determined based on gross receipts) in any quarter of 2020 compared to the same quarter of 2019 (with flexible alternative comparison periods for PPP borrowers that were not in business all or any portion of 2019) will be eligible for a Second Draw PPP Loan.The new SBA rules also permit PPP borrowers to demonstrate the 25% gross revenue loss on an annual basis, comparing 2020 to 2019. Note that the gross receipts of a PPP borrower with affiliates is calculated by adding the gross receipts of the PPP borrower with the gross receipts of each of its affiliates.
  • The maximum loan size for a second draw PPP loan in most cases will be the lesser of 2.5 times average monthly payroll for one of two periods (at the election of the PPP borrower) and $2 million. PPP borrowers with a NAICS code 72 (mostly in the restaurant and hotel industries) may borrower up to the lesser of 3.5 times average monthly payroll and $2 million.
  • There is also a $4 million aggregate cap on the Second Draw PPP loans borrowed by any PPP borrower and all other PPP borrowers in the same “corporate group” (as defined in the SBA guidance).
  • Existing PPP borrowers who qualified under the more than one location exemption will continue to qualify only for each location that can demonstrate that it satisfies the 300 employee and 25% gross revenues reduction requirements.
  • Only one Second Draw PPP Loan is permitted per existing PPP borrower.

     

• Confirming that any PPP lender that was eligible to make a PPP loan previously continues to be eligible to do so, though there is no express requirement that any PPP lender provide additional PPP loans under the PPP loan programs implemented by the Economic Aid Act.
• Expanding the hold harmless provisions for PPP lenders that rely on PPP borrower certifications in making forgiveness determinations.
• Revisions to the forgiveness requirements for First Draw PPP Loans and Second Draw PPP Loans, which apply to existing PPP loans in most cases except where forgiveness has already been determined, including permitting a flexible forgiveness period of between 8 and 24 weeks, at the election of the PPP borrower (although the SBA rules eliminated the previously established alternate forgiveness period for PPP borrowers with bi-monthly or more frequent pay periods).
• Expansion of forgivable non-payroll expenses to include certain operations expenditures, supplier costs and worker protection expenditures to the extent resulting from changes necessitated by COVID-19, as more fully described in the Economic Aid Act, as well as the costs of repairing property damage from civil unrest in 2020 that was not covered by insurance.
• Retaining the requirement that at least 60% of the forgiven amount consist of payroll costs.
• Extending safe harbors for curing reductions in employee headcount or reductions in employee compensation have been extended for PPP loans made after the enactment of the Economic Aid Act to permit cure by the end of the relevant covered period (rather than by December 31, 2020).
• Expanding the existing simple forgiveness application concept to cover all PPP loans of $150,000, including requiring a one-page application to be promulgated by the SBA. No relief on the application requirements were provided for PPP loans in excess of $150,000, however.
• Clarifying that only an applicant in business on February 15, 2020, is eligible for any PPP loan.
• Expanding eligibility for PPP Loans to include certain news organizations, housing cooperatives, 501(c)(6) organizations (so long as lobbying activities comprise no more than 15% of receipts or activities) and destination marketing organizations (so long as lobbying activities comprise no more than 15% of receipts or activities).
• Providing expanded calculation and eligibility guidance for farmers and ranchers.
• Adding additional prohibitions on eligibility for a PPP Loan, including exclusion of public companies, entities listed in 13 CFR 120.110 (other than certain nonprofits and religious organizations), recipients of SBA shuttered venue grants established by the Economic Aid Act, applicants primarily engaged in lobbying activities, Foreign Agents Registration Act of 1938 registrants, and applicants with 20% or more direct or indirect ownership by a Chinese company or having one or more board members resident in the Peoples Republic of China.
• Revising the federal income tax treatment of the forgiven amount of a PPP loan, so that expenses paid with forgiven amount of a PPP loan may still be deducted as expenses even though the PPP loan used to pay those expenses has been forgiven.The forgiven portion of any PPP loan will continue not to be treated as income for federal income tax purposes, as well.
  

  
  EIDL

• Making EIDL grants eligible for forgiveness.The grants of up to $10,000 that are a part of the SBA’s Economic Injury Disaster Loan program (EIDL) are no longer deducted from forgiveness of PPP loans. Some borrowers may have received both a PPP loan and an EIDL.Besides the actual loan which must be repaid, the EIDL program includes a $10,000 grant, which is not required to be repaid.Section 1110 of the CARES Act had required many PPP borrowers that also received an EIDL loan before the PPP launched to refinance that EIDL as part of the PPP loan and to deduct the amount of the grant from its PPP forgiveness amount, which would leave the borrower with $10,000 of its PPP loan to be repaid.
• Adding a $20 billion appropriation for EIDL grants that will allow new EIDL borrowers to receive grants through December 31, 2021. In addition, any small businesses that previously received an EIDL grant are also eligible to receive an amount equal to the different that such business already received and $10,000.
  
  

  Shuttered Venue Grants

• Authorizing $15 billion for the SBA to make grants of up to $10 million to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, movie theatre operators, or talent representatives (venue operators) who were in business as of February 29, 2020.
• Eligibility criteria include, among others, that the operator have sustained a 25 percent revenue loss in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Eligibility criteria also include for example, that there is a defined performance and audience space, and that there is a paid ticket or cover charge to attend performances.As of the date of receiving the grant, the venue operators must be open or intend to reopen.
• Grants may be used to cover expenses such as payroll costs, rent, utilities, and personal protective equipment.
• There is a 60-day set-aside of $2 billion for eligible entities that employ not more than 50 full-time employees.
  
  

  Bankruptcy Provisions:

• Amends the Bankruptcy Code to permit initial and second draw PPP loans to debtors or trustees who are either (i) subject to a case under the Small Business Reorganization Act of 2019, (ii) subject to a case under Chapter 12 of the Bankruptcy Code pertaining to family farmer and fishermen debtors or (iii) self-employed Chapter 13 debtors, but notwithstanding that the statute permits such PPP Loans, the SBA’s Interim Final Rule does not.   However, the statute does allow for the SBA Administrator to permit such PPP Loans by sending a letter to the Director of the Executive Office of the United States Trustee determining that one or more of these debtors are eligible for PPP loans.
• Assuming the SBA Administrator finds a debtor or trustee eligible for a PPP loan then the following criteria must also be met: (a) the debtor’s bankruptcy case must be pending or filed on or after the date the SBA sends the letter referenced above, (b) authorization from the Bankruptcy Court after notice and a hearing, (c) the PPP loan (unless forgiven) is granted super priority administrative status giving the PPP loan a superior right to payment over all other unsecured creditors or under a plan of reorganization that proposes to make payment in full ( unless the loan is forgiven) of the PPP loan granted during the debtor proceeding.
• The changes described above expire by their terms two (2) years from the date of enactment.
• Amends Section 1328 to give the Bankruptcy Court discretion to grant a discharge to a Chapter 13 debtor even if the debtor defaulted on or after March 13,2020 in not more than three monthly payments under a residential mortgage because of a material COVID-19 related financial hardship.
• Does not extend the increase in the debt cap ($2,725,625 to $7,500,000) for debtors eligible under the Small Business Reorganization Act of 2019 which was granted under the CARES Act and expires at the end of March, 2021.
• Does not extend the homestead exemption granted under HEROES Act.