Paycheck Protection Program and Loan Forgiveness

Paycheck Protection Program and Loan Forgiveness

Under the CARES Act, organizations, including 501(c)(3) nonprofits, and self-employed individuals gained access to Paycheck Protection Program (PPP) forgivable loans in 2020, intended to provide rapid relief that will keep workers on the payroll and help self-employed workers. Loans are provided by local lending institutions that are authorized by the Small Business Administration (SBA). In December 2020, more than $280 billion in new PPP relief was signed into law, including reopening the program for first-time applicants, providing a second opportunity for 2020 loan recipients to seek forgivable loans, and revising the loan forgiveness process for both 2020 and 2021 loan recipients. In March 2021, an additional $7.25 billion was added to PPP resources, and eligibility changes will allow nonprofits with no more than 500 employees at each location to be eligible for forgivable loans. On March 25, 2021, Congress voted to expand the PPP application deadline from March 31 to May 31, 2021.

Eligibility

  • PPP allowable expenses are expanded to include software and computing costs associated with moving business services and operations online, and the cost of personal protective equipment and other expenses required for meeting public health and safety orders from March 1, 2020 to the end of the national emergency declaration.
  • This expansion applies to prior PPP loans that have not yet been forgiven, as well as new PPP loans.
  • As in 2020, the SBA continues its policy that, “independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation.” 

Loan Forgiveness

  • The requirement that 60% of costs be attributed to payroll in order to achieve full loan forgiveness is maintained.
  • The prior requirement that borrowers deduct an Economic Injury Disaster Loan amount from their forgivable PPP loan amount has been repealed.
  • The portion of the loan that can be forgiven will be reduced by an amount related to positions that have been eliminated and wages that have been reduced unless those positions and wages are restored. Borrowers are exempted from the proportional reduction of loan forgiveness related to retained full-time-equivalent positions in cases in which the borrower is unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19.
  • Borrowers will be eligible for loan forgiveness equal to the amount of allowable costs spent during a period of their choosing, between 8 and 24 weeks following the origination date of the loan. This flexibility to choose the duration of this period is available to 2020 PPP loans that have not completed the forgiveness process, as well as 2021 loans.
  • The SBA has set in place a new streamlined loan forgiveness process for borrowers with loans of $150,000 and under.

Second Draw

  • Forgivable loans of up to $2 million will be available to employers with a workforce that does not exceed 300 employees and that can demonstrate at least a 25% gross receipts decline in any quarter of 2020, compared to 2019. For nonprofits, gross receipts are defined as under the terms of the Form 990.
  • As with the first round of PPP, loan amounts equal 2.5 times average monthly payroll costs.