New Funds Available for PPP and EIDL Loans: What You Need to Know

Note: This is an update to an article originally published on April 24, 2020.

On April 21, 2020, the U.S. Senate approved new funding for two Small Business Administration (SBA) programs that were implemented as part of the CARES Act to help support small businesses in response to the coronavirus pandemic: the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans (EIDL). The U.S. House of Representatives approved the bill on April 23, 2020. The initial funding for the PPP and EIDL programs was exhausted on April 16, 2020.

Highlights of the New Bill

  • $310 billion of new funding for the SBA PPP loans
    • $60 billion set aside for smaller lending institutions, which serve minority and women owned businesses
  • $60 billion in additional SBA emergency EIDL relief
    • $50 billion for new EIDL loans
    • $10 billion for EIDL grants
    • Expands EIDL eligibility for grants and loans to include agricultural enterprises

Where to Apply?

We recommend that those business that did not receive PPP funds the first time around go through the entire list of SBA-approved lenders. Look at non-traditional, alternative sources (i.e. PayPal, Square, QuickBooks) who are now also participating in the PPP.

Can You Apply With More than One Lender?

Remember that you cannot get more than one PPP loan, but you are able to apply through different lenders. Considering the chaos of the initial round of the PPP along with the fact that different banks have different processes to address the demand of these loans, you might consider applying with multiple lenders. If you decide to apply with more than one lender, make sure to ask for a guarantee that the lenders will contact you before submitting your file. That way you can immediately withdraw your applications with the other lenders.

Can You Apply for Both PPP & Unemployment?

You cannot receive both a loan through the PPP and unemployment benefits. If you applied for unemployment while waiting for the second wave of PPP funds, you must withdraw from unemployment as soon as you receive your PPP funds.

Any New Statutory Changes/New SBA Rules?

The new bill did not introduce any changes to the statutory language in the CARES Act for the PPP. However, the SBA continues to provide new guidelines and rules to define the PPP.

On April 23, 2020 the SBA issued new guidance that makes it “unlikely” that big publicly traded companies can access the next round of PPP funding. The SBA indicated that large public companies who received a PPP loan before the rule change can avoid scrutiny by returning the relief loans in two weeks – this is a safe harbor period for those businesses to return the PPP loan. These returned loans will go back to the fund to be distributed to those business who need the funding.

Remember that borrowers applying for PPP loans must certify that these funds are necessary due to the current economic conditions. It is unlikely that public companies with substantial market value and access to capital markets will be able to make that good faith certification since they are able to tap into other sources of funding.

On April 28, 2020, after new revelations about big businesses getting money in the first wave, including the Los Angeles Lakers and Shake Shack, Treasury Secretary Steve Mnuchin stated that the SBA would undertake a “full review” of any loan that exceeds $2 million under the PPP.

Highlights from the New SBA Frequently Asked Questions (FAQs)

When does that eight-week period begin to determine the amount of forgiveness for a PPP Loan? 

The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than 10 calendar days from the date your PPP loan was approved.

How do the $10 million cap and affiliation rules work for franchises?

If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan.  The $10 million cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan.

What happens if you applied for a PPP loan based on the version of the PPP Interim Final Rule published on April 2, 2020?

You do not need to take any action based on the updated guidance in the new SBA FAQs dated April 23, 2020. Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application.  However, borrowers whose previously-submitted loan applications have not yet been processed may revise their applications based on clarifications reflected in these FAQs.

The SBA added questions 32–35 on April 24, 2020 and question 36 on April 26, 2020 to the above-mentioned FAQs.

The new guidance:

  • States that the cost of a housing stipend or allowance provided to an employee as part of compensation counts toward payroll costs, subject to the $100,000 annual compensation per employee limitation.
  • Explains that borrowers and lenders may consider the principal residence rules in Regs. Sec. 1.121-1(b)(2) when determining whether or not an individual employee’s principal place of residence is in the United States.
  • States that agricultural producers, farmers, ranchers, and agricultural and other forms of cooperatives are eligible for a PPP loan if: (i) the business has 500 or fewer employees, (ii) the business fits within the revenue-based sized standard, which is average annual receipts of $1 million, or (iii) the business meets SBA’s “alternative size standard.”
  • States that all employees (individuals employed on a full-time, part-time, or other basis) should be used to determine eligibility under the 500-employee threshold established for the PPP.

How Do You Calculate the Maximum Amount of the PPP Loan?

On April 24, 2020, the SBA issued additional guidance on how each type of entity should go about calculating its maximum PPP loan amount. It includes guidance for the following businesses:

  • Self-employed individuals with no employees.
  • Self-employed individuals with employees.
  • Self-employed individuals who report income on IRS Form 1040, Schedule F, Profit or Loss From Farming.
  • S corporations and C corporations.
  • Eligible not-for-profit organizations.
  • Eligible not-for-profit religious institutions, veterans’ organizations, and tribal businesses.
  • LLC owners (whose instructions vary, depending on whether they file as a sole proprietor, partnership, or corporation).

The US Department of the Treasury (“Treasury”) issued additional guidance for seasonal employers. Treasury determined that seasonal employers are now allowed to use any consecutive 12-week period between May 1, 2019, and Sept. 15, 2019 as their base period for PPP loan calculations.[1]

Guidance from the IRS

On April 30th, the IRS issued a notice regarding tax treatment of PPP funds.  The IRS notice addresses the deductibility, for federal income tax purposes, of expenses paid by a business with PPP loans.  The IRS notice confirms expenses paid with PPP funds eventually forgiven are not deductible. As a reminder, the PPP loan forgiveness is not counted as taxable income. The new guidelines from the IRS are in place to prevent a “double tax benefit.”

[1] Initially, seasonal employers were allowed to use their monthly average payroll for the Feb. 15, 2019, to June 30, 2019, period or March 1, 2019, to June 30, 2019, period. However, upon further consideration, the Treasury determined that many seasonal employers have seasons that are later in the year.

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