What is the law on economic aid?

The Law on Economic Aid, among others, re-authorizes loans under the Paycheck Protection Program (PPP) until March 31, 2021, changes the provisions for granting PPP loans and cancellation of PPP loans, and authorizes second-draw PPP loans under new Section 7 (a) (37) of the Small Business Act for PPP borrowers who have already received a PPP loan. The Small Business Administration (SBA) has issued draft final rules that meet the requirements of the Economic Aid Act while also consolidating previous publications under the PPP program under the Aid, Relief Act and economic security against coronaviruses (CARES Act).

Under the Economic Assistance Act, for eligible employers with a maximum of 10 employees OR for loans up to $ 250,000 or less:

• At least $ 15 billion is earmarked for PPP First Draw loans
• At least $ 25 billion is earmarked for PPP Second Draws loans

What are First Draw PPP Loans?

Under the Economic Aid Law, first-draw PPP loans are loans (i) previously issued under the PPP program under the CARES Law or (ii) loans for which new PPP borrowers can request.

Who is eligible to apply for a first draw PPP loan?

Eligible borrowers must:

• Be a small entity which, together with its affiliates (if any), have 500 or fewer employees, including non-profit organizations, veterans organizations, tribal groups, self-employed workers, sole proprietorships and independent contractors.
• Entities with more than 500 employees in certain industries that meet the SBA Alternative Size Standard or the SBA Size Standards for those particular industries may apply.[1]

If I am an existing PPP loan borrower, can I reapply for a first draw PPP loan and / or request a loan increase?

Yes – if you are an existing PPP borrower who did not receive a loan cancellation by December 27, 2020, you can (i) reapply for a first draw PPP loan if you have already returned some or all of your PPP First Draw loan funds OR (ii) in certain circumstances, request a modification to your PPP First Draw loan if you have not previously accepted the full amount you were eligible for at the time of your request initial.

For first-time PPP borrowers, will 2019 or 2020 be used as the base period for which my maximum loan amount will be calculated?

First-time PPP borrowers will have the option to choose a base period that maximizes that borrower’s eligibility (i.e. new borrowers are allowed to use 2019 Where 2020 for the purpose of calculating their maximum loan amount).

What are second-draw PPP loans?

The Economic Aid Law, borrowers are eligible to apply for second-draw PPP loans are loans only if that borrower: (i) has already received funds under the PPP program and (ii) will use or has used the total amount of the previous PPP loan only for authorized purposes.

Who is eligible to apply for a second PPP loan?

Eligible borrowers must:

• Have received a first draw PPP loan;
• have used, or will use, the total amount of the first PPP pulling loan on eligible expenditure no later than the scheduled date on which the second PPP pulling loan is disbursed;
• Not have more than 300 employees; and
• Be able to demonstrate a 25% or more reduction in income in 2020 compared to 2019 which can be calculated by (i) comparing the quarterly gross receipts for a quarter in 2020 with the borrower’s gross receipts for the corresponding quarter 2019 or (ii) if a borrower was in business for all four quarters of 2019, that borrower is deemed to have undergone the required income reduction if it experienced a reduction in annual income of 25% or more in 20202 from 2019.

In addition to the application, what additional documents are required to apply for a second draw PPP loan?

• For loans with a principal amount bigger more than $ 150,000 – sufficient documentation to establish that the borrower experienced a reduction in income of 25% or more in 2020 compared to 2019 (this may include the relevant tax forms, annual tax forms or, if these forms relevant tax is not available, quarterly financial statements or bank statements).
• For loans with a principal amount less greater than or equal to $ 150,000 – no documents required at time of application submission, but must be submitted on or before the date the borrower requests loan forgiveness.

How much can I borrow for a PPP Second Draw loan?

Typically, the maximum amount for a second draw P3 loan is 2.5 times the 2019 or 2020 average monthly salary costs up to $ 2 million. For borrowers in the accommodation and food services industry, the maximum loan amount for a second-draw PPP loan is 3.5 times the 2019 or 2020 average monthly salary costs up to $ 2 million.

What can first-draw PPP loans and second-draw PPP loans be used for?

Loans can be used to finance salary costs (including fringe benefits); mortgage interest, rent, utilities, worker protection costs related to COVID-19, costs of uninsured property damage caused by looting or vandalism in 2020, and certain costs and vendor expenses for operations .

Do the membership rules in connection with the CARES law still apply?

In general, yes – the same membership rules apply to PPP First Draw Loans also apply to PPP Second Draw Loans.

What are the conditions for canceling the PPP loan on the first drawdown and on the second drawdown?

Both first and second draw PPP loans are eligible for full loan forgiveness if during the 8-24 week period of loan disbursement:

• Employee and compensation levels are maintained in the same manner as those required under the PPP First Draw loan;
• The proceeds are spent on salary costs and other eligible expenses; and
• At least 60% of revenues are spent on personnel costs.

When and how do I apply for a first draw PPP loan or a second draw PPP loan?

Now. Borrowers can apply for a first or second draw PPP loan from now until March 31, 2021, through any existing SBA lender (or other eligible financial institution). All second-draw PPP loans will have the same loan terms regardless of lender or borrower.

How are remittances processed for tax purposes?

The Law on Economic Aid clarifies the tax treatment of repayable PPP loan amounts. The current CARES law provides that canceled PPP loans do not constitute taxable income for borrowers. However, later in 2020, the IRS issued Notice 2020-32 and Rev. Rul. 2020-27, which provided that expenses paid with the proceeds of the non-refundable PPP loan were not deductible. The Economic Aid Law provides that borrowers using such amounts (including past PPP loans and new PPP loans) on otherwise deductible expenses are entitled to deduct such expenses. In accordance with this provision, the IRS noted in Rev. Rul. 2021-2 as the IRS Notice 2020-32 and Rev. Rul. 2020-27 are obsolete.

[1] This includes businesses with a NAICS code starting with 72 (accommodation and food services industry) or qualifying news agencies with no more than 500 employees per physical location, as well as housing co-ops, organizations 501 (c) (6) or the marketing of destinations. organizations with no more than 300 employees.