On December 27, 2020, the Consolidated Appropriations Act (the Act) was signed into law. The legislation amends the Paycheck Protection Program (PPP) created under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and administered through the Small Business Administration (SBA). The Act earmarks approximately $284.85 billion in loans to eligible, first-time PPP borrowers and eligible, second-time PPP borrowers that previously received a PPP loan.
The SBA plans to issue additional regulatory guidance on implementing PPP described in the Act. Under the Act, PPP borrowers have until March 31, 2021 to apply for a PPP loan. This alert discusses the recent updates to the PPP loan program.
A. What Businesses Are Eligible For PPP Loans?
- Allocation of PPP Loans Under the Act. The Act earmarks PPP aid to the following businesses and industries:
- $15 billion for live venues, independent movie theaters, and cultural institutions,
- $20 billion for targeted grants for Economic Injury Disaster Loan (EIDL) program,
- $9 billion in U.S. Treasury capital investments for Community Development Financial Institutions (CDFI) and Minority Depository Institutions, and
- $3 billion for the CDFI fund to support low income and underserved communities.
- First-time PPP Borrowers. First-time PPP borrowers remain subject to the PPP eligibility requirements established under the CARES Act. (See CFMB Updates on the Paycheck Protection Program under the CARES Act on our website located here). In addition to the eligibility requirements under the CARES Act, the following businesses are also eligible to be first-time PPP borrowers under the Act:
- Farm Credit System Institutions,
- certain housing cooperatives,
- news organizations (including publicly traded news organizations), and broadcasting organizations, provided that:
- any news organization or broadcasting organization with more than one physical location, may not have more than 500 employees in any physical location, and
- any publicly traded news organization or broadcasting organization must certify that the PPP loan will be used to promote locally focused or emergency information,
- Section 501(c)(6) organizations (i.e., trade groups, chamber of commerce groups, and certain destination marketing companies), provided that:
- such organization must have less than 300 employees,
- such organization does not receive more than 15 percent of receipts from lobbying activities,
- such organization’s lobbying activities do not comprise of more than 15 percent of its total activities, and
- the cost of the lobbying activities of the organization does not exceed $1 million during the most recent tax year that ended prior to February 15, 2020.
- Recipients of loans under the Economic Injury Disaster Loan program.
- Second-Time PPP Borrowers. Second-time PPP borrowers may apply for a second PPP loan, if such PPP borrower satisfies the eligibility requirements under the Act. In order for a second-time PPP borrower to obtain a second PPP loan, the second-time PPP Borrower must have:
- fewer than 300 employees, and
- be able to demonstrate that it experienced at least a 25% decrease in gross receipts during the first quarter, second quarter or third quarter in 2020 (or the fourth quarter in 2020 if the PPP borrower applied for a PPP loan after January 1, 2021), as compared to the same quarter in 2019. 
Each second-time PPP borrower is eligible to receive a PPP loan in an amount up to 2.5 times its average total monthly payroll during either (i) the one-year period prior to the disbursement date of the PPP loan or (ii) the calendar year 2019. Each second-time PPP borrower in the accommodation and food services sector (NAICS codes starting with 72) is eligible for a PPP loan for up to 3.5 times its average monthly payroll. In no event can a second PPP loan to any second-time PPP borrower exceed $2 million. In addition, any second-time PPP borrower that would have been eligible to receive an increase in its first PPP loan amount, under the terms of the Act, can now reapply for the amount of such increase.
- Businesses not Eligible to Receive PPP Loans under the Act. The Act also provides which businesses are no longer eligible to receive a PPP loan. These businesses include:
- Businesses that were not in operation on February 15, 2020,
- Businesses engaged in primarily political or lobbying activities,
- with any owner that directly or indirectly owns 20% or more of such business and is created or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or
- that have “significant operations” in People’s Republic of China or the Special Administrative Region of Hong Kong, or
- that have a resident of the People’s Republic of China as a board member.
B. Significant Changes Under the Act.
- Expansion of Authorized Uses of PPP Loans. Under the Act, the authorized use of PPP loan proceeds has been expanded to include:
- Payments for business software or cloud computing services that facilitate business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses,
- Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation,
- Expenditures made to suppliers for certain goods that are essential to such PPP borrower’s business made pursuant to a contract or order in effect at any time before the covered period, or with respect to perishable goods, in effect at any time during the covered period, and
- Operating or capital expenditures that allow a business to comply with health and safety guidelines, including sanitation standards, social distancing requirements, and other worker or customer safety measures that have been issued by the CDC, HHS, OSHA or any state or local government in connection with COVID-19 (operating or capital expenditures that allowed, include, but are not limited to, expenses related to PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows).
- Simplified Forgiveness. The Act has simplified the forgiveness process for PPP loan borrowers that received or may receive PPP loans of $150,000 or less. These PPP borrowers will be able to apply for loan forgiveness using a one-page loan application. The one-page loan application will require the PPP borrower to provide:
- the number of employees the PPP borrower was able to retain with the proceeds of the PPP loan,
- the estimated amount of PPP loan proceeds spent on payroll,
- the total PPP loan amount, and
- certification that the PPP Borrower complied with all program requirements and retains all applicable records.
- Covered Period. PPP borrowers can choose the length of the covered period (i.e., the time period during which the PPP borrower must use the proceeds of the PPP loan). The covered period can end at any time between 8 weeks and 24 weeks after the PPP loan proceeds are disbursed.
- Repeal of EIDL Deduction. The CARES Act required PPP borrowers to subtract their EIDL advance from the amount to be forgiven on their PPP loans. This in effect, required the PPP borrower to repay its EIDL advance. The Act repeals this requirement.
- Tax Treatment of PPP Loans. The Act provides that all PPP loans issued under the CARES Act or the Act will not be included as taxable income and expenses paid with the proceeds of any forgiven PPP loan are tax-deductible.
- PPP Lenders. The Act provides that an SBA approved lender will not be subject to any liability relating to PPP loan applications or PPP loan forgiveness applications if the lender acts in good faith in reliance on the PPP borrower’s certification or the other documentation submitted by the PPP borrower.
 Further guidance from the SBA explaining how a second-time PPP borrower can demonstrate a 25% decrease in gross receipts has not yet been released.
 The Act requires the SBA to issue further guidance on this topic.
 The SBA has not yet released this application. The Act requires the SBA to issue the application within 24 days from the enactment of the Act.
 PPP borrowers should be cautious when completing these one-page applications and certifying to the SBA that they have complied with all requirements under PPP. There is liability for any PPP borrower if it makes a false certification to the SBA. PPP borrowers should ensure that all employment records related to the PPP loan forgiveness application are retained for four years following the date of the submission of the PPP loan forgiveness application and all other records relating to the PPP loan forgiveness application are retained for a period of three years following the date of the submission of the PPP loan forgiveness application.
Croke Fairchild Morgan & Beres LLC helped many clients navigate the first round of PPP loans and forgiveness. Please contact any of us if we can help you better understand these latest developments.
About Croke Fairchild Morgan & Beres
Croke Fairchild Morgan & Beres is a corporate law firm providing services to businesses, private equity and venture firms and their portfolio companies, public companies, founders and family offices. Formed by partners who worked at preeminent international law firms, the firm boasts a deep bench of sophisticated and experienced corporate lawyers. With offices in Chicago, Lake Forest, and Milwaukee, our team provides exceptional legal service while affording our clients the benefits of working with a small, agile, and driven law firm. For more information, please visit us online at crokefairchild.com.