Cotney Newsletter

PPP Loan Rules for 2021

When the U.S. Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act in March 2020, lawmakers hoped to stimulate the economy amidst the unfolding pandemic. The CARES Act was broad in scope and offered a variety of benefits to the American people.

The Paycheck Protection Program (PPP) was one of the most critical aspects of the legislation. It earmarked $659 billion for potentially forgivable loans that small businesses and nonprofits could use for designated payroll and nonpayroll expenses. By mid-August 2020, loan applicants had received more than $5.25 billion.

In December 2020, Congress passed the Consolidated Appropriations Act, 2021, and within that massive piece of legislation was the Economic Aid Act, which provided almost $2.85 billion in funding for new PPP loans. However, the act included new qualification rules, and the application deadline is March 31, 2021.

If your business could benefit from these loans, be sure you understand the eligibility requirements.

First Draw Requirements

Businesses that did not previously participate in PPP loans can apply for first draw loans. You can apply if you are self-employed, a sole proprietor, or an independent contractor. You can also apply if your company meets certain U.S. Small Business Administration (SBA) size requirements. In most cases, you must employ 500 or fewer people.

Second Draw Requirements

Businesses that have already received a PPP loan can apply for another draw, but new qualifications are in place. You must have already used (or be in the process of using) your earlier loan amount, and you must employ fewer than 300 people (revised from the previous 500). You must also be able to show a 25% reduction in gross receipts from one quarter in 2019 to the same quarter in 2020.

Loan Forgiveness

The PPP loans carry an interest rate of 1%. Loans issued before June 5, 2020, mature in two years, while those issued after that date mature in five years.

To be eligible for loan forgiveness, you must show that you maintained your staff and compensation levels for the covered eight to 24 weeks after loan disbursement. You must also show that you used the loan proceeds for payroll costs (at least 60%) and other eligible expenses. Once you have used all the funds, you can apply for loan forgiveness but must do so before the loan’s maturity date. If you have not applied within ten months after the last day of your covered period, you must begin making payments to your lender.

PPP Law Enforcement

Over the last several months, the U.S. Department of Justice Criminal Division has brought PPP-related charges against nearly 100 defendants, with accusations of misusing more than $250 million.

Many criminal cases have involved borrowers who allegedly falsified information, such as payroll amounts or IRS records. Others involved borrowers who received multiple loans or completely fabricated businesses. Also, cases have been filed against borrowers who have used funds for personal expenses or lavish purchases.

If you apply for a PPP loan and receive the requested allocation, it is crucial that you use the funds as they were intended and that you keep thorough records. If you have any questions regarding appropriate fund usage, be sure to contact the SBA or consult your attorney.

Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.