Unpacking the Economic Aid Act and American Rescue Plan Act: Consolidated First Draw PPP Interim Final Rule, New First Draw PPP Loans, and Increases to First Draw PPP Loans

On January 6, 2021, the Small Business Administration (the “SBA”) and the Department of Treasury released an Interim Final Rule called “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act” (sometimes referred to as the “Consolidated First Draw PPP IFR” or the “IFR”). That rule restates existing regulatory provisions into a single regulation on borrower eligibility, lender eligibility, and loan application or origination requirement issues for new First Draw PPP Loans, as well as general rules relating to First Draw PPP Loan increases and loan forgiveness.

The SBA also released an Interim Final Rule called “Business Loan Program Temporary Changes; Paycheck Protection Second Draw Loans” (“Second Draw Rules”). These rules announced the implementation of section 311 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”). Both rules take effect immediately. For more information about the Second Draw Rules, see Economic Aid Act: 10 Things to Know about Second Draw PPP Loans.

On February 22, 2021, the Biden-Harris Administration and the SBA announced the taking of certain steps with the PPP to further promote equitable relief for smaller businesses. See “PPP: Changes by the Biden–Harris Administration” (February 23, 2021). On March 3, 2021, the SBA posted: (a) a revised Borrower Application Form and a revised Second Draw Borrower Application Form; (b) Borrower Application for Schedule C Filers Using Gross Income; (c) Second Draw Borrower Application Form for Schedule C Filers using Gross Income; (d) revised lender application form and a revised PPP second-draw lender application form; (e) Updated Frequently Asked Questions, including FAQs 57-63; and (e) Interim Final Rule on Loan Amount Calculating and Eligibility (“March 2021 IFR”). On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted and certain eligibility changes were made to the First Draw PPP Loan program and an additional $7.25 billion was added for PPP Loans. On March 18, 2021, the SBA posted an Interim Final Rule on Paycheck Protection Program as Amended by American Rescue Plan Act (“Eligibility IFR”) and posted updated borrower and lender application forms for First Draw and Second Draw PPP Loans. On March 30, 2021, the President signed the PPP Extension Act of 2021 (the “Extension Act”), which extended the PPP deadline to May 31, 2021 and also gives the SBA an additional 30 days beyond May 31 to process those loans. On April 6, 2021, the Frequently Asked Questions (“FAQs”) were further updated. This article includes those changes as they affect First Draw PPP Loans.

On May 4, 2021, the SBA announced it would stop accepting new applications. See Q3.

This article[1] summarizes key aspects relating to new First Draw PPP Loans and increases in First Draw PPP Loans. It also restates and updates, in a question and answer format, our prior guidance as it relates to the new First Draw PPP Loans.

Table of Contents

Background information about First Draw PPP Loans:

• Q1. What are “new” First Draw PPP Loans?
• Q2. How does a “new” borrower access a new First Draw PPP Loan?
• Q3. What is the deadline?
  
  

Eligibility, exclusion, and affiliation questions about First Draw PPP Loans:

• Q4. Who is eligible?
• Q5. Are there other eligible businesses?
• Q6. What businesses, organizations, and individuals are ineligible?
• Q7. What are the affiliation rules? In what instances are the affiliation rules waived or exempt? How are affiliate employees counted?
• Q8. What are the “per physical location” exceptions?
  
  

Loan terms, requirements, and conditions for First Draw PPP Loans:

• Q9. What are the loan terms and conditions?
• Q10. What is the maximum loan amount? What documentation is required?
• Q11. What qualifies as payroll costs? What is excluded from payroll costs?
• Q12. Who count as employees?
• Q13. How can the proceeds be used? What about improper use or unauthorized use?
• Q14. How are proceeds to be used for individuals with income from self-employment who file a Form 1040, Schedule C?
  
  

Forms, questions, certifications, and safe harbors for First Draw PPP Loans:

• Q15. What forms must a borrower submit for a new First Draw PPP Loan?
• Q16. What questions are included in Form 2483?
• Q17. What certifications need to be made?
• Q18. Is there a limited safe harbor with respect to certifications concerning need for a First Draw PPP Loan?
  
  

Loan forgiveness and increases to First Draw PPP Loans:

• Q19. Can the First Draw PPP Loan be forgiven in whole or in part?
• Q20. What do I need to know about increases in First Draw PPP Loans received prior to December 27, 2020, and what will the SBA do with "unresolved borrowers" in these situations‎?
  
  

Background information about First Draw PPP Loans 

1. What are “new” First Draw PPP Loans?

The Economic Aid Act and the ARP Act provided additional funds for “new” First Draw PPP Loans, which are loans made to “new” borrowers under the Paycheck Protection Program, and for Second Draw PPP Loans. The Economic Aid Act and the ARP Act also amended certain terms of the original PPP for these “new” First Draw PPP Loans and Second Draw PPP Loans.

2. How does a “new” borrower access a new First Draw PPP Loan?

New borrowers of First Draw PPP Loans access the loans through eligible lenders, such as SBA 7(a) lenders and any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in the PPP. Borrowers submit loan applications to these lenders, and these lenders then submit the applications to the SBA for approval. On January 8, 2021, the SBA announced that to promote access for smaller lenders and their customers, the SBA will initially only accept loan applications from community financial institutions starting on January 11, 2021. On January 13, 2021, the SBA announced that it would open its portal to PPP-eligible lenders with $1 billion or less in assets for First Draw PPP Loan applications on Friday, January 15, 2021 and the portal will fully open on January 19, 2021 to all participating PPP lenders to submit First Draw PPP Loan applications.

Starting on February 24, 2021, businesses and nonprofits with fewer than 20 employees were given a 14-day exclusive application period.

At least $15 billion is set aside for First Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low- to moderate-income neighborhoods. Given these priorities, some borrowers may have to wait. After borrowers who are given priority access to First Draw PPP Loans, we expect availability will be on a first-come, first-served basis, and the funds may go faster now that forgiveness and tax rules are clearer.

3. What is the deadline?

Under the Extension Act, the last day for lenders to submit applications for new First Draw PPP Loans is May 31, 2021, and, the SBA will have an additional 30 days to process the applications submitted before June 1, 2021. On May 4, 2021, the SBA informed lenders that the SBA would stop accepting new PPP applications because it was basically out of funds.  The remaining funds available for new applications are $8 billion set aside for community financial institutions and a $6 billion set aside for PPP applications still in review status or needing more information due to error codes.  The SBA reported on May 2, 2021 that it had approved about $258 billion from the program’s reopening on January 11 through May 2.

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Eligibility, exclusion, and affiliation questions about First Draw PPP Loans

4. Who is eligible?

The following businesses, organizations, and individuals are eligible (unless they are an ineligible business[2]):

(a) it was in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC, or it was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees; and

(b) it, together with any affiliates[3] (if applicable), is one of the following:

• a small business concern under the applicable revenue-based size standards established in 13 C.F.R. 121.201 for its industry or under the SBA alternative size standard[4];
• an independent contractor, eligible self-employed individual, or sole proprietor;
• a business concern, a tax-exempt nonprofit organization described in section 501(c)(3) of the Internal Revenue Code (“IRC”), a tax-exempt veterans organization described in section 501(c)(19) of the IRC, a tribal business concern described in section 31(b)(2)(C) of the Small Business Act, and it employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201;
• a housing cooperative that employs no more than 300 employees and meets the criteria described in the interim final rules implementing updates to the PPP;
• a business concern that is assigned a North American Industry Classification System (“NAICS”) code beginning with 72 that employs no more than 500 employees per physical location;
• an eligible section 501(c)(6) organization or an eligible destination marketing organization that employs no more than 300 employees per physical location;
• a news organization that is majority owned or controlled by an NAICS code 511110 (Newspaper Publishers) or 5151 (Radio and Television Broadcasting) business or a nonprofit public broadcasting entity with a trade or business under NAICS code 511110 (Newspaper Publishers) or 5151 (Radio and Television Broadcasting), and employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for its industry) per location;
• agricultural producers, farmers, and ranchers (see FAQ 34);
• a tax-exempt nonprofit organization described in section 501(c)(3) of the IRC that employs not more than 500 employees per physical location of the organization;
• a tax-exempt nonprofit organization described in Section 501(c) of the IRC, other than paragraph (3), (4), (6), or (19) that employs not more than 300 employees per physical location and meets the criteria described in the interim final rules implementing updates to the PPP (that is (a) the organization does not receive more than 15% of receipts from lobbying activities; (b) the lobbying activities do not comprise more than 15% of activities; (c) the cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year that ended prior to February 15, 2020);
• a business concern or other organization that was not eligible to receive a PPP loan before March 11, 2021, is eligible if it: (1) is assigned a NAICS code of 519130; (2) certifies in good faith that it is an Internet-only news publisher or Internet-only periodical publisher; (3) is engaged in the collection and distribution of local or regional and national news and information; (4) employs not more than 500 employees (or the size standard in the number of employees established by SBA in C.F.R. 121.201 for NAICS code 519130) per physical location; and (5) certifies in good faith that the proceeds of the loan will be used to support expenses at the component of the business concern organization that supports local regional news; or
• another type of entity specifically provided for by PPP rules (see question 5 below).
  
  

5. Are there other eligible businesses?

Yes, the SBA has determined that the following industry-specific businesses are eligible, if they satisfy the other First Draw PPP Loan requirements, even though they are on the ineligible business list:

• a hospital that is a business concern or nonprofit organization (described in section 501(c)(3) of the IRC and exempt from taxation under section 501(a) of the IRC) is not ineligible for a First Draw PPP Loan due to ownership by a state or local government if the hospital receives less than 50% of its funding from state or local government sources, exclusive of Medicaid.
• a business that receives legal gaming revenues (13 CFR 120.110(g) is inapplicable to First Draw PPP Loans); businesses that received illegal gaming revenue remain categorically ineligible.
• an electric cooperative that is exempt from federal income taxation under section 501(c)(12) of the IRC is considered to be “a business entity organized for profit” for purposes of 13 CFR 121.105(a)(1) and is eligible. However, for PPP loans after the effective date of the Eligibility IFR, these entities are eligible if they have no more than 300 employees per physical location, but these entities are no longer permitted to use the employee-based SBA size standard for their industry or SBA’s alternative size standard to determine size.
• a telephone cooperative that is exempt from federal income taxation under section 501(c)(12) of the IRC is considered to be “a business entity organized for profit” for purposes of 13 CFR 121.105(a)(1) and is eligible. However, for PPP loans after the effective date of the Eligibility IFR, these entities are eligible if they have no more than 300 employees per physical location, and these entities are no longer permitted to use the employee-based SBA size standard for their industry or SBA’s alternative size standard to determine size.
• housing cooperatives (as defined in section 216(b) of the IRC) that employ not more than 300 employees.
• a public broadcasting entity (as defined in section 397(11) of the Communications Act of 1934 (47 U.S.C. 397(11)) that is a nonprofit organization or any organization otherwise subject to section 511(a)(2)(B) of the IRC, and employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the entity’s industry) per location if the organization has a trade or business that is assigned a NAICS code beginning with 511110 or 5151, and makes a good faith certification that proceeds of the loan will be used to support expenses at the component of the organization that produces or distributes locally focused or emergency information.
• a “destination marketing organization.”[5]
• any organization that is described in section 501(c)(6) of the IRC and that is exempt from taxation under section 501(a) of the IRC (excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity) if: (1) the organization does not receive more than 15% of its receipts from lobbying activities; (2) the lobbying activities of the organization do not comprise more than 15% of the total activities of the organization; (3) the cost of the lobbying activities of the organization did not exceed $1 million during the most recent tax year of the organization that ended prior to February 15, 2020; and (4) the organization employs not more than 300 employees.
  
  

Under the March 2021 IFR and the FAQs:

• Individual Taxpayer Identification Number (“ITIN”) Borrowers: FAQ 64 clarified that an owner of an applicant, sole proprietor, self-employed individual, or independent contractor that has an ITIN instead of an SSN may use the ITIN on the PPP application form or forgiveness form. An ITIN is a tax processing number only available to certain nonresident and resident aliens, to their spouses, and their dependents who cannot get an SSN. To be eligible for a PPP loan or to receive loan forgiveness, the applicant must meet all eligibility criteria and PPP requirements, which includes the requirement that the principal place of residence for a sole proprietor, self-employed individual, or independent contractor must be in the United States.
• Bankruptcy: FAQs 59 and 60 clarified that (a) if a borrower that was eligible for a First Draw PPP Loan files for bankruptcy protection after disbursement of the First Draw PPP Loan, that borrower is eligible for loan forgiveness set forth in the PPP interim final rules, including but not limited to, loan proceeds are used only for eligible expenses and at least 60% of the loan proceeds are used for eligible payroll costs; and (b) a borrower that received a First Draw PPP Loan and files for bankruptcy protection after disbursement of the First Draw PPP Loan is not eligible to apply for a Second Draw PPP Loan. On April 6, 2021, FAQ 67 detailed that an applicant or owner of 20% or more of the applicant are not “presently involved in any bankruptcy” for PPP loan eligibility purposes: (a) for Chapter 7 bankruptcy petitions, until the Bankruptcy Court has entered a discharge order in the case; (b) for Chapter 11, 12 or 13 bankruptcy petitions, until the Bankruptcy Court has entered an order confirming the plan in the case; or (c) if the Bankruptcy Court has entered an order dismissing the case, regardless of the Chapter, the applicant or owner is no longer “presently involved in any bankruptcy.”  FAQ 67 further states: (i) that the discharge order, the order confirming the plan or the order of dismissal, whichever is applicable, must be entered before the date of the PPP loan application; and (ii) notwithstanding the foregoing, if an applicant has permanently closed as a result of a bankruptcy filing, the applicant is ineligible for a PPP loan because the applicant is required to certify on the PPP borrower application that the applicant “has not permanently closed.”
  
  

6. What businesses, organizations, and individuals are ineligible?

There are two sets of guidance relating to ineligible businesses based on industries, activities, and other factors: PPP specific guidance and general SBA rules.

PPP specific industries, activities, and other factors: Per the IFR and Eligibility IFR, the following activities and industries make a business ineligible for a First Draw PPP Loan:

• illegal activity under federal, state, or local law;
• household employer (individuals who employ household employees such as nannies or housekeepers);
• an owner of 20% or more of the equity of the borrower is presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years (Note: The March 2021 IFR eliminated the one year look-back for non-financial fraud felonies);
• an owner, or any business owned or controlled by the owner or any of its owners, has ever obtained a direct or guaranteed loan from SBA or any other federal agency (other than a federal student loan made under Parts B, D, and E of the Higher Education Act of 1965, as amended, or other programs now administered by the U.S. Department of Education, which include the William D. Ford Federal Direct Loan program, the Federal Family Education Loan (FFEL) program, the Federal Perkins Loan program, the Health Education Assistance Loan (HEAL) program, or the Teacher Education Assistance for College and Higher Education (TEACH) program) that is currently delinquent or has defaulted within the last seven years and caused a loss to the government (Note: the March 2021 IFR eliminated the exclusion for defaulted or delinquent federal student loans);
• the President, the Vice President, the head of an Executive Department, or a Member of Congress, or the spouse of such person as determined under applicable common law, directly or indirectly holds a controlling interest in the business;
• an issuer, the securities of which are listed on an exchange registered as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) (SBA will not consider whether a news organization or Internet publishing organization that is otherwise eligible is affiliated with an entity, which includes any entity that owns or controls such news organization or Internet publishing organization, that is an issuer);
• the business has permanently closed;
• the business or the owner is a debtor in a bankruptcy proceeding, either at the time its submits the application or at any time before the loan is disbursed (see Form 2483). Note: if the borrower or owner becomes a debtor in a bankruptcy proceeding after submitting a PPP application but before the loan is disbursed, it is the applicant’s obligation to notify the lender and request cancellation of the application. See Question 5 – Bankruptcy for meaning of “presently involved in any bankruptcy”;
• a hedge fund or private equity firm because they are primarily engaged in investment or speculation; or
• a tax-exempt organization described in section 501(c)(4) of the IRC.
  
  

General SBA ineligible businesses as modified by the PPP rules: In general, the ineligibility restrictions in 13 CFR 120.110 apply to all PPP loans, but certain sections do not apply or are suspended for PPP loans—such as nonprofits, legal gambling, certain religious organizations, and the rules relating to incarceration, probation, parole, or indictment for a felony or a crime of moral turpitude. For a general list of ineligible businesses, see 13 CFR 120.110 (“What businesses are ineligible for SBA business loans?”) ‎and the SBA’s Standard Operating Procedure (SOP) 50 10 6 Part 2, Section A. Chapter 3 (effective October 1, 2020). Also see the Schwabe article “Businesses Ineligible for the Paycheck Protection Program.”

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7. What are the affiliation rules? In what instances are the affiliation rules waived or exempt? How are affiliate employees counted?

Affiliation: In most cases, a borrower will be considered together with its affiliates for purposes of determining eligibility for a new First Draw PPP Loan and for determining the number of employees of a borrower. That means that, in most cases, the revenues and number of employees of the borrower and all of the borrower’s affiliates will be aggregated when determining if the borrower is eligible under the applicable SBA size standard. Under the “Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program” (April 3, 2020) (the “PPP Affiliation Rules”), there are four tests for affiliation based on control: (i) affiliation based on ownership, (ii) affiliation arising under stock options, convertible securities, and agreements to merge, (iii) affiliation based on management, and (iv) affiliation based on identity of interest. See “Affiliation Rules Applicable to U.S. Small Business Administration Paycheck Protection Program.”

Additionally, nonprofit organizations, housing cooperatives, and veterans organizations are subject to the affiliation rule. Please note that the affiliation rules contained in 13 CFR 121.301 apply, and not the detailed affiliation rules contained in 13 C.F.R. 121.103.

Exemptions and waivers: For PPP purposes and pursuant to the PPP Affiliation Rules and Economic Aid Act, there is a religious exemption for certain faith-based organizations and activities, and the affiliation rules are waived for:

1. 1. any business concern with not more than 500 employees that, as of the date on which the loan is disbursed, is assigned a NAICS code beginning with 72 (Accommodation and Food Services);
   2. any business concern operating as a franchise that is assigned a franchise identifier code by the SBA;
   3. any business concern that receives financial assistance from a company licensed under section 301 of the Small Business Investment Act of 1958 (15 U.S.C. 681);
   4. (a) any business concern (including any station that broadcasts pursuant to a license granted by the Federal Communications Commission under title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.) without regard for whether such a station is a concern as defined in section 121.105 of title 13, Code of Federal Regulations, or any successor thereto) that employs not more than 500 employees, or the size standard established by the Administrator for the NAICS code applicable to the business concern, per physical location of such business concern and is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 (Newspaper Publishers) or 5151 (Radio and Television Broadcasting); or
      (b) any nonprofit organization that is assigned a NAICS code beginning with 5151 (Radio and Television Broadcasting); and
   5. any business concern or organization that is assigned a NAICS code of 519130, certifies in good faith as an Internet-only news publisher or Internet-only periodical publisher, and is engaged in the collection and distribution of local or regional and national news and information, if the business concern or organization employs not more than 500 employees (or the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for NAICS code 519130) per physical location, and is majority owned or controlled by a business concern or organization that is assigned NAICS 519130.
      
      

The SBA also applies affiliation exceptions to certain categories of entities, including: (i) certain business concerns owned and controlled by Indian Tribes, Alaska Native Corporations (“ANCs”), Native Hawaiian Organization (“NHOs”), Community Development Corporations (“CDCs”) or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs; (ii) certain business concerns that lease employees from concerns primarily engaged in leasing employees to other businesses or that enter into a co-employer arrangement with a Professional Employer Organization (“PEO”); and (iii) member shareholders of a small agricultural cooperative. See 13 CFR 121.103(b) for a complete list, and that list is included in 13 CFR 121.301(f)(9).

Portfolio companies: The affiliation rules apply to private equity-owned businesses in the same manner as any other business subject to outside ownership control. However, in the IFR, the SBA emphasized that all borrowers should carefully review the required certification in Form 2483, stating: “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

Employee stock ownership plan (“ESOP”): For purposes of PPP and IFR, a business’s participation in an ESOP (as defined in 15 U.S.C. 632(q)(6)) does not result in an affiliation between the business and the ESOP.

Counting domestic and foreign affiliate employees: For PPP purposes and IFR, employees of the concern “and all of its domestic and foreign affiliates” are included. Therefore, to calculate the number of employees of an entity for purposes of determining eligibility for a First Draw PPP Loan, an entity must include all employees of its domestic and foreign affiliates, except in those limited circumstances where the affiliation rules expressly do not apply to the entity. Any entity that, together with its domestic and foreign affiliates, does not meet the 500-employee, 300-employee,[6] or other applicable PPP size standard is therefore ineligible for a new First Draw PPP Loan. Under no circumstances may PPP funds be used to support non-U.S. workers or operations.

Form 2483 and Form 2483-C: In order to help potential borrowers identify other businesses with which they may be deemed to be affiliated under the common management standard, Form 2483 and Form 2483-C require borrowers to list other businesses with which they have common management (including under a management agreement). Such information is to be used by applicants as they assess whether they have affiliates that should be included in their number of employees reported on the forms.

8. What are the “per physical location” or “per location” exceptions?

Certain borrowers are allowed to borrow based on the “per physical location” or “per location” exception under certain conditions. Those borrowers are:

• Any single business entity that is assigned a NAICS code beginning with 72 (including hotels and restaurants) and employs not more than 500 employees per physical location is eligible to receive a First Draw PPP Loan. Also, the affiliation rules do not apply to such entities. As a result, if each hotel or restaurant location owned by a parent business is a separate legal business entity and employs not more than 500 employees, each hotel or restaurant location is permitted to apply for a separate First Draw PPP Loan provided it uses its unique EIN.
• A news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business, a nonprofit public broadcasting entity with a trade or business under NAICS code beginning with 511110 or 5151, or an Internet-only news or periodical publisher assigned NAICS code 519130 and engaged in the collection and distribution of local or regional and national news and information, and employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the industry) per location.
• An eligible 501(c)(3) organization that employs not more than 500 employees per physical location.
• An eligible 501(c)(6) organization, other eligible 501(c) organization, or eligible destination marketing organization that employs not more than 300 employees per physical location.
  
  

Also, see FAQ 24 for guidance on the standards for business concerns with more than one physical location.

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Loan terms and requirements for First Draw PPP Loans:

9. What are the loan terms and conditions?

The terms and conditions of the loan are:

• The interest rate will be 100 basis points (or 1%), calculated on a non-compounding, non-adjustable basis.
• The maturity is five years.
• Only one First Draw PPP Loan, subject to increase (see discussion below) or a Second Draw PPP Loan.
• The SBA will guarantee 100% of the First Draw PPP Loan.
• No collateral will be required.
• No personal guarantees will be required.
• If the borrower does not submit a loan forgiveness application within 10 months after the end of the “loan forgiveness covered period” (the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement), the borrower must begin to principal and interest after that period.
• All loans will be processed by lenders under delegated authority, and lenders will be permitted to rely on certifications of the borrower to determine the borrower’s eligibility and use of loan proceeds.
  
  

10. What is the maximum loan amount? What documentation is required? 

In general: The maximum loan amount for a First Draw PPP Loan is the lesser of $10 million or 2.5 times the “average monthly payroll” for payroll costs incurred or paid by the borrower during 2019, 2020, or the precise 1-year period before the date on which the loan is made (the “Precise Period”) (at the election of the borrower); plus the outstanding amount of an Economic Injury Disaster Loan (“EIDL”) made between January 31, 2020, and April 3, 2020, that the borrower is seeking to refinance (other than the EIDL Advance Amount). The methodology to determine “average monthly payroll” is generally:

(Step 1) the aggregate payroll costs from 2019, 2020, or the Precise Period;

(Step 2) less any compensation paid to an employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payment are made or the obligation to make the payments is incurred; and

(Step 3) divided by 12.

The IFR, the March 2021 IFR, and other guidance contain a step-by-step methodology.

A borrower must provide Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever is used to calculate the loan amount), or equivalent payroll processor records, along with documentation of any retirement and group health, life, disability, vision, and dental insurance contributions. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the borrower was in operation on February 15, 2020.

C corporations and S corporations: Borrowers use the methodology and documents provided above under “In general,” except: (a) that employer contributions for group health, life, disability, vision, and dental insurance for S corporation employees who own more than a 2% stake in the business (or employees who are family members of such owners) are not included, as such contributions are already in gross wages; and (b) these entities must also provide a filed business tax return (IRS Form 1120 or IRS 1120-S).

Form 990 nonprofit organizations: For nonprofit organizations that have an IRS Form 990 filing requirement, borrowers use the methodology provided above under “In general.” As for documentation, the nonprofit organization must provide its IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with the filed IRS Form 990 Part IX or other documentation of any retirement and group health, life, disability, vision, and dental insurance contributions. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the borrower was in operation and had employees on that date. Eligible nonprofits that file IRS Form 990-EZ should rely on that form.

Nonprofit religious institutions, veterans organizations, tribal businesses, and non-Form 990 nonprofit organizations: For these organizations, borrowers use the methodology provided above under “In general.” As for documentation, this organization must provide its IRS Form 941 and state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements), along with documentation of any retirement and group health, life, disability, vision, and dental insurance contributions. A payroll statement or similar documentation from the pay period that covered February 15, 2020 must be provided to establish the borrower was in operation and had employees on that date.

Limited liability companies (“LLCs”): LLCs should follow the instructions that apply to their tax filing status in the reference period used to calculate payroll costs (2019 or 2020)—i.e., whether the LLC filed (or will file) as a sole proprietor, a partnership, or a corporation in the reference period.

Seasonal employers: Seasonal employers mean an employer that did not operate for more than 7 months in any calendar year, or that during the preceding calendar year had gross receipts for any 6 months of that year that were not more than 33.33% of the gross receipts of the employer for the other 6 months of that year. For Form 2483, the maximum loan amount for seasonal employers is 2.5 times the average total monthly payments for payroll costs incurred or paid by the borrower for any 12-week period between February 15, 2019 and February 15, 2020 (at the election of the borrower) plus any EIDL to be refinanced (not including the EIDL Advance Amount). For Form 2483 and Form 2483-C, the seasonal employer applicant may elect to instead use average total monthly payroll for any 12-week period selected by the applicant between February 15, 2019 and February 15, 2020, excluding costs over $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, for each employee. In all cases, the loan cannot exceed $10 million.

Farmers and ranchers: For a farmer or rancher that (a) operates as a sole proprietorship or as an independent contractor, or is an eligible self-employed individual (including single member LLCs and qualified joint ventures); (b) reports farm income or expenses on a Schedule F (or any equivalent successor IRS form); and (c) was in business as of February 15, 2020, the maximum loan amount depends on whether the borrower has employees. In both cases, the loan cannot exceed $10 million. For purposes of calculating the loan amount using gross income (Schedule F filers only), borrowers use the sum of gross income (Schedule F, line 9) from both spouses. The IFR and other guidance contain a step-by-step methodology.

Without employees: If the borrower does not have employees, the maximum loan amount is 2.5 times the gross income of the borrower in 2019 or 2020, as reported on the 2019 or as computed for 2020 on Schedule F (IRS Form 1040), that is not more than $100,000, divided by 12, plus any EIDL to be refinanced (not including the EIDL Advance Amount).

A borrower without employees must provide: (1) the 2019 or 2020 (whichever it used to calculate loan amount) Form 1040 Schedule F with its PPP loan application to substantiate the applied-for PPP loan amount, (2) a 2019 or 2020 (whichever it used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes it was self-employed; and (3) a 2020 invoice, bank statement, or book of record to establish it was in operation on or around February 15, 2020.

With employees: If the borrower does have employees, the maximum loan amount is 2.5 times the sum of (i) the difference between gross income and eligible payroll costs of the borrower in 2019 or 2020 (at the election of the borrower), as reported on the 2019 or as computed on the 2020 Schedule F (IRS Form 1040), that is not more than $100,000, divided by 12, and (ii) the average total monthly payment for eligible payroll costs incurred or paid by the borrower during the same year elected by the borrower plus any EIDL to be refinanced (not including the EIDL Advance Amount).

A borrower with employees must supply: (1) the 2019 or 2020 (whichever it used to calculate loan amount) Form 1040 Schedule 1 and Schedule F, (2) Form 943 (or other tax forms or equivalent payroll processor records containing similar information), (3) state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever it used to calculate loan amount) or equivalent payroll processor records, along with evidence of any retirement and health insurance contributions, if applicable; and (4) a payroll statement or similar documentation from the pay period that covered February 15, 2020 to establish it was in operation on February 15, 2020.

Note: A farmer or rancher who received a First Draw PPP Loan before December 27, 2020 may request a recalculation of the maximum loan amount based on the formula described above regarding gross income, if doing so would result in a larger covered loan amount and it may receive an increase in its PPP loan based on the recalculation.

Schedule C Filers: For a borrower that has income from self-employment and files a Form 1040, Schedule C, the maximum loan amount depends on whether or not the borrower has employees, and whether or not the owner elects to calculate the owner compensation share of its payroll costs—that is, the share of its payroll costs that represents compensation of the owner—based on either (1) net profit; or (2) gross income (the amount the borrower reports on line 7 of Schedule 7) (note: the gross income alternative is only available for loans approved after March 3, 2021—a borrower whose PPP loan was already approved prior to March 3, 2021 cannot increase its PPP loan amount based on the new calculation methodology). If the Schedule C filer has no employees, the borrower may elect to calculate its loan amount based on either net profit or gross income. If the Schedule C filer has employees, the borrower may elect to calculate the owner compensation share of its payroll costs based on either (i) net profit or (ii) gross income minus expenses reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages (less employment credits)) of IRS Form 1040, Schedule C. Expenses reported on lines 14, 19, and 26 of the IRS Form 1040, Schedule C represent employee payroll costs and are subtracted from the owner compensation share of payroll costs if the owner uses gross income to calculate its loan amount in order to avoid double-counting these costs. In the context of determining a borrower’s eligible expenses and forgiveness amount, the March 2021 IFR refers to the owner compensation share of a Schedule C filer’s loan amount as “proprietor expenses.” Proprietor expenses encompass an owner’s business expenses and owner compensation but do not include employee payroll costs. This proprietor expenses calculation limits a Schedule C filer that included employee payroll costs in determining the PPP loan amount from taking the full loan amount as owner compensation. If a Schedule C filer elects to use gross income to calculate its loan amount on a First Draw PPP Loan and the borrower reports more than $150,000 in gross income on the Schedule C that was used to calculate the borrower’s loan amount, the borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith, and the borrower may be subject to a review by SBA of its certification. The safe harbor that the SBA previously provided for borrowers that, together with their affiliates, receive PPP loans with an original principal amount of less than $2 million will not apply to Schedule C filers that elect to use gross income to calculate their loan amount on a First Draw PPP Loan if they report more than $2,150,000 in gross income on the Schedule C that was used to calculate the borrower’s loan amount. In any event, the loan cannot exceed $10 million. The March 2021 IFR and other guidance contain a step-by-step methodology.

Without employees: If the borrower does not have employees, the maximum loan amount is 2.5 times the net profit or gross income of the borrower in 2019 or 2020, as reported for 2019 or as computed for 2020, on IRS Form 1040 Schedule C, that is not more than $100,000, divided by 12 (this amount cannot exceed $20,833) plus any EIDL to be refinanced (not including the EIDL Advance Amount).

For a borrower with no employees, it must provide: (a) the 2019 or 2020 (whichever it used to calculate loan amount) Form 1040 Schedule C with the PPP loan application to substantiate the applied-for PPP loan amount; (b) a 2019 or 2020 (whichever it used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), IRS Form 1099-K, invoice, bank statement, or book of record that establishes it was self-employed and if using 2020 to calculate loan amount, this is required regardless of whether the borrower has filed a 2020 tax return with the IRS; and (c) a 2020 invoice, bank statement, or book of record to establish it was in operation on or around February 15, 2020.

With employees: If the borrower does have employees, the maximum loan amount is 2.5 times the sum of (i) 2019 or 2020 payroll: at the borrower’s election, either (1) the net profit amount from line 31 of the borrower’s 2019 or 2020 IRS Form 1040, Schedule C; or (2) the 2019 or 2020 gross income minus employee payroll costs, calculated as the gross income reported on IRS Form 1040, Schedule C, line 7, minus employee payroll costs reported on lines 14, 19, and 26 of IRS Form 1040, Schedule C (for either option, if the borrower is using 2020 amounts and has not filed a 2020 return, fill it out and compute the value), up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred (if this amount is over $100,000, reduce it to $100,000, or if this amount is less than zero, set this amount at zero); (ii) 2019 or 2020 gross wages and tips paid to employees whose principal place of residence is in the United States, computed using 2019 or 2020 IRS Form 941 Taxable Medicare wages & tips (line 5c, Column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; subtract any amounts paid to any individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, and any amounts paid to any employee whose principal place of residence is outside the United States; and (iii) 2019 or 2020 employer contributions to employee group health, life, disability, vision, and dental insurance (portion of IRS Form 1040, Schedule C line 14 attributable to those contributions); retirement contributions (IRS Form 1040, Schedule C, line 19); and state and local taxes assessed on employee compensation (primarily under state laws  commonly referred to as the State Unemployment Tax Act or SUTA from state quarterly wage reporting forms); divided by 12, plus any EIDL to be refinanced (not including the EIDL Advance Amount). In addition to pre-tax employee contributions for health insurance, employee contributions and deductions from pay for flexible spending arrangements (FSA) or other nontaxable benefits under a section 125 cafeteria plan, qualified transit or parking benefits (up to $270 a month), and group life insurance (for up to $50,000 of coverage) may have been excluded from IRS From 941 Taxable Medicare wages and tips. However, pre-tax employee contributions to retirement plans are included in taxable Medicare wages and tips and should not be added to that figure to arrive at gross pay.

For a borrower with employees, the borrower must supply: (w) its 2019 or 2020 (whichever it used to calculate loan amount) Form 1040 Schedule C; (x) Form 941 (or other tax forms or equivalent payroll processor records containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever it used to calculate loan amount) or equivalent payroll processor records; (y) documentation of any retirement or group health, life, disability, vision, and dental insurance contributions, if applicable; and (z) a payroll statement or similar documentation from the pay period that covered February 15, 2020 to establish it was in operation on February 15, 2020.

Please note that for Form 2483-C and for purposes of calculating average monthly payroll for employees (box C), applicants must use the average monthly payroll for 2019 or 2020 for employees (not including the owner), excluding costs over $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, for each employee. The payroll year used must be the same as the tax year used for the gross income calculation (box A in either table).

Partnership: For a borrower that files taxes as a partnership, the maximum loan amount is 2.5 times the sum of (i) net earnings from self-employment of individual general partners in 2019 or 2020 (at the election of the borrower), as reported on IRS Form 1065 K-1, reduced by section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties, multiplied by 0.9235, that is not more than $100,000 per partner, divided by 12; and (ii) the average total monthly payment for eligible payroll costs incurred or paid by the borrower during the same year elected by the borrower plus any EIDL to be refinanced (not including the EIDL Advance Amount). In all cases, the loan cannot exceed $10 million. The IFR other guidance contain a step-by-step methodology. The borrower must supply (w) 2019 or 2020 (whichever it used to calculate loan amount) IRS Form 1065 (including K-1s); (x) and other relevant supporting documentation if the partnership has employees, including the 2019 or 2020 (whichever it used to calculate loan amount) IRS Form 941; (y) state quarterly wage unemployment insurance tax reporting form from each quarter (or equivalent payroll processor records or IRS Wage and Tax Statements) along with records of any retirement or group health, life, disability, vision, and dental insurance contributions; and (z) if the partnership has employees, a payroll statement or similar documentation from the pay period that covered February 15, 2020 to establish the partnership was in operation and had employees on that date and if the partnership has no employees, an invoice, bank statement, or book of record to establish that the partnership was in operation on February 15, 2020.

Single corporate group: Businesses that are part of a single corporate group cannot receive First Draw PPP Loans in a total amount of more than $20 million of PPP loans in the aggregate. For purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent. It is the responsibility of an applicant for a PPP loan to notify the lender if the applicant has applied for or received PPP loans in excess of the amount permitted by the IFR and to withdraw or request cancellation of any pending PPP loan application or approved PPP loan not in compliance with the limitation. Failure by the applicant to do so will be regarded as a use of PPP funds for unauthorized purposes, and the loan will not be eligible for forgiveness. Businesses are subject to this limitation even if the businesses are eligible for waiver-of-affiliation provisions under the CARES Act or are otherwise not considered to be affiliates under SBA’s affiliation rules.

“New entity”: A “new entity” or a “new business” means a borrower that did not exist during the 1-year period preceding February 15, 2020, but was in operation on February 15, 2020). The maximum loan amount is 2.5 times the average monthly payroll (calculated using the time period from January 1, 2020 to February 29, 2020, excluding costs over $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, for each employee) plus any EIDL to be refinanced (not including the EIDL Advance Amount). There is an alternative calculation for corporations, nonprofits, self-employed individuals, or partnerships in operation on February 15, 2020, but not in operation between February 15, 2019 and June 30, 2019. Such an entity may follow the methodology instructions for its type of entity (including farmers and ranchers) and use payroll information for all of 2020 instead of 2019. 

Qualified Joint Venture for Federal Income Tax Purposes: Under Form 2483 and 2483-C, if the applicant is a qualified joint venture for federal income tax purposes ((1) the only members of the joint venture are a married couple who file a joint return and each file Schedule C, (2) both spouses materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership), only one spouse may submit the form on behalf of the qualified joint venture. For Form 2483-C, (a) for purposes of reporting the Number of Employees, each spouse should be counted; (b) for purposes of determining which table to use to calculate Loan Request Amount, if the applicant has no employees other than the married couple, complete the table labeled “If you do not have any employees other than yourself, complete this table”; (c) for purposes of calculating gross income, enter the sum of gross income (Schedule C, line 7) from both spouses; and (d) for purposes of calculating the Loan Request Amount, the amount entered in box B in either table is capped at $8,333.33.

Sole proprietor: For purposes of Form 2483-C and for a sole proprietorship, the sole proprietor is considered the owner of the applicant. For a limited liability company that has only one member and that is treated as a disregarded entity for federal income tax purposes and files Schedule C, the member is considered a sole proprietor and the owner of the applicant. If the applicant is treated as a qualified joint venture for federal income tax purposes (the only members of the joint venture are a married couple who file a joint return and each file a Schedule C), both spouses are considered sole proprietors and owners of the applicant.

Payroll costs: A borrower may provide IRS Form W-2s and IRS Form W-3 or payroll processor reports, including quarterly and annual tax reports, in lieu of IRS Form 941. Additionally, very small businesses that file an annual IRS Form 944 or agricultural employers that file an annual Form 943 should rely on and provide IRS Form 944 or IRS Form 943 in lieu of IRS Form 941. A borrower may provide records from: (a) a retirement administrator to document employer retirement contributions; and (b) a health insurance or third-party administrator for a self-insured plan to document employer health insurance contributions.  

Other guidance: See the March 12, 2021 guidance: “How to Calculate Maximum Loan Amounts – By Business Type.” This guidance has examples for the following borrowers: self-employed with no employees using net profit; self-employed with employees using net profit; self-employed farmers and ranchers who report on IRS Form 1040 Schedule F; partnerships; S-corporations; C-corporations; eligible nonprofit organizations; eligible nonprofit religious institutions, veterans organizations, and tribal businesses; limited liability companies; corporations, nonprofits, self-employed and partnerships not in operation for a full one-year period preceding February 15, 2020; and entities using “gross income.”

11. What qualifies as payroll costs? What is excluded from payroll costs?

In general: Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave (except those paid leave amounts for which a credit is allowed under [Families First Coronavirus Response Act] FFCRA sections 7001 and 7003); allowance for separation or dismissal; payment for the provision of employee benefits (including insurance premiums) consisting of group health care coverage, group life, disability, vision, or dental insurance, and retirement benefits; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. For purposes of Form 2483-C, this includes proprietor expenses, which means businesses expenses plus owner compensation. Payroll costs also include a housing stipend or allowance.

Excluded: The following items are excluded:

• any compensation of an employee whose principal place of residence is outside of the United States;
• the compensation of an individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred. In FAQ 7, the SBA clarified that the exclusion of compensation in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, applies only to cash compensation, not to non-cash benefits, including: (a) employer contributions to defined-benefit or defined-contribution plans, (b) payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance coverage, including insurance premiums, and (c) payment of state and local taxes assessed on compensation of employees;
• federal employment taxes imposed or withheld during the applicable period, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees;
• qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127);
• independent contractor compensation, except that fishing boat owners may include compensation reported on Box 5 of IRS Form 1099-MISC and paid to a crewmember described in section 3121(b)(20) of the IRC, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, as a payroll cost in its PPP loan application.
  
  

12. Who count as employees?

For purposes of determining size eligibility, all employees of the borrower and its domestic and foreign affiliates must be included, absent a waiver of or an exception to the affiliation rules. In determining a concern’s number of employees, the SBA counts all individuals employed on a full-time, part-time, or other basis. A borrower must therefore calculate the total number of employees, including part-time employees, when determining their employee head count for purposes of the eligibility threshold. This includes employees obtained from a temporary employee agency, professional employee organization, or leasing concern. Independent contractors and volunteers do not count as employees. By contrast, for purposes of loan forgiveness, the standard is “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.

Per the application forms and for purposes of reporting the number of employees, sole proprietors, self-employed individuals, and independent contractors include themselves as employees (i.e., the minimum number in the application box Number of Employees is one). Applicants may use their average employment over the time period used to calculate their aggregate payroll costs to determine their number of employees. Alternatively, applicants may elect to use the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application.

Under updated guidance (FAQ 14), for purposes of applying an employee-based size standard, borrowers may use their average employment over the time period used to calculate their loan amount. Alternatively, borrowers may elect to use the SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months). For seasonal employers, the IFR and Economic Aid Act changed the period to any 12-week period between February 15, 2019 and February 15, 2020, and seasonal employers must use the average number of employees per pay period during the 12-calendar week period the borrower used to calculate its payroll costs (FAQ 14).

For purposes of determining “payroll costs,” only employees whose “principal place of residence” is in the United States count. FAQ 33 states that PPP applicants and lenders may consider IRS regulations (26 CFR 1.121-1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States. That regulation lists the following criteria:

• the principal residence depends upon all the facts and circumstances;
• if the individual alternates between two properties, using each as a residence for successive periods of time, the property that the individual uses a majority of the time during the year ordinarily will be considered the individual’s principal residence.
• in addition to the individual’s use of the property, relevant factors in determining a person’s principal residence include but are not limited to (a) the individual’s place of employment; (b) the principal place of abode of the individual’s family members; (c) the address listed on the individual’s federal and state tax returns, driver’s license, automobile registration, and voter registration card; (d) the individual’s mailing address for bills and correspondence; (e) the location of the individual’s banks; and (f) the location of religious organizations and recreational clubs with which the individual is affiliated.
  
  

13. How can the proceeds be used? What about improper use or unauthorized use?

Proper use: Except for self-employed borrowers (see Question 14), the proceeds of the First Draw PPP Loan are to be used for:

• payroll costs (as defined in the CARES Act, Economic Aid Act, and the IFR);
• costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums;
• mortgage interest payments (but not mortgage prepayments or principal payments);
• rent payments;
• utility payments;
• interest payments on any other debt obligations that were incurred before February 15, 2020;
• refinancing an EIDL loan made between January 31, 2020 and April 3, 2020;
• covered operations expenditures (that is, payments for any business software or cloud computing service that facilitates 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);
• covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation);
• covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that (A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) are made pursuant to a contract, order, or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan); and
• covered worker protection expenditures that are operating or capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a state or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to COVID-19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. Such expenditures may include (i) the purchase, maintenance, or renovation of assets that create or expand (I) a drive-through window facility; (II) an indoor, outdoor, or combined air or air pressure ventilation or filtration system; (III) a physical barrier such as a sneeze guard; (IV) an expansion of additional indoor, outdoor, or combined business space; (V) an on-site or off-site health screening capability; or (VI) other assets relating to the compliance with the requirements or guidance described in subparagraph (A), as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (ii) the purchase of (I) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation; (II) particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only pursuant to an emergency use authorization; or (III) other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor. But expenditures do not include residential real property or intangible property.
  
  

For purposes of forgiveness, at least 60% of the loan proceeds are to be used for payroll costs. For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be included. For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.

Improper use: First Draw PPP Loan proceeds may not be used for (1) lobbying activities, as defined in section 3 of the Lobbying Disclosure Act of 1995 (2 U.S.C. 1602); (2) lobbying expenditures related to a state or local election; or (3) expenditures designed to influence the enactment of legislation, appropriations, regulation, administrative action, or executive order proposed or pending before Congress or any state government, state legislature, or local legislature or legislative body.

Unauthorized use of funds: If the borrower uses PPP funds for unauthorized purposes, the SBA will direct the borrower to repay those amounts. If the borrower knowingly used the funds for unauthorized purposes, it will be subject to additional liability such as charges for fraud. If one of its shareholders, members, or partners uses PPP funds for unauthorized purposes, the SBA will have recourse against the shareholder, member, or partner for the unauthorized use.

14. How are proceeds to be used for individuals with income from self-employment who file a Form 1040, Schedule C?

The SBA determined that some limitations should be in place on borrowers that are self-employed, and the proceeds of a First Draw PPP Loan are to be used only for the following.

• For borrowers that use net profit to calculate loan amount, owner compensation replacement, calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount) net profit as described in the IFR. For borrowers that use gross income to calculate loan amount, proprietor expenses (business expenses plus owner compensation), calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount) gross income as described in the IFR (this amount cannot exceed $20,833). For borrowers who used gross income to calculate the loan amount and have no employees, proprietor expenses equal gross income. For borrowers who used gross income to calculate the loan amount and have employees, proprietor expenses equal the difference between gross income and employee payroll costs.
• Employee payroll costs (as defined in the IFR) for employees whose principal place of residence is in the United States.
• Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (e.g., the interest on the mortgage for the warehouse purchased to store business equipment or the interest on an auto loan for a vehicle used to perform the business), business rent payments (e.g., the warehouse where the business stores business equipment or the vehicle used to perform the business), and business utility payments (e.g., the cost of electricity in the rented warehouse or gas used in driving the business vehicle). (The borrower must have claimed or be entitled to claim a deduction for such expenses on its 2019 or 2020 (whichever used to calculate loan amount) Form 1040 Schedule C for them to be a permissible use.)
• Interest payments on any other debt obligations that were incurred before February 15, 2020 (such amounts are not eligible for PPP loan forgiveness).
• Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020 (maturity will be reset to PPP’s maturity of two years for PPP loans made before June 5, 2020, unless the borrower and lender mutually agree to extend the maturity of such loans to five years, or PPP’s maturity of five years for PPP loans made on or after June 5).
• Covered operations expenditures, as defined in section 7A(a) of the Small Business Act, to the extent they are deductible on Form 1040 Schedule C.
• Covered property damage costs, as defined in section 7A(a) of the Small Business Act, to the extent they are deductible on Form 1040 Schedule C.
• Covered supplier costs, as defined in section 7A(a) of the Small Business Act, to the extent they are deductible on Form 1040 Schedule C.
• Covered worker protection expenditures, as defined in section 7A(a) of the Small Business Act, to the extent they are deductible on Form 1040 Schedule C.

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Forms, questions, certifications and safe harbors for First Draw PPP Loans

15. What forms must a borrower submit for a new First Draw PPP Loan? (to be updated)

A borrower must submit to the lender either (a) Form 2483 (as revised March 18, 2021) and the payroll documentation described in Question 9; or (b) Form 2483-C (Paycheck Protection Program Borrower Application Form for Schedule C Filers Using Gross Income March 18, 2021) and the payroll documentation described in Question 9. An applicant that files an IRS Form 1040, Schedule C, and elects to calculate the PPP loan amount using net profit must use Form 2483. An applicant that files an IRS Form 1040, Schedule C, and elects to calculate the PPP loan amount using gross income cannot use Form 2483-SD and must use Form 2483-C. An applicant that files an IRS Form 1040, Schedule F, and calculated the PPP loan amount using gross income must use Form 2483. 

16. What questions are included in Form 2483 and Form 2483-C? (to be updated)
Form 2483 and Form 2483-C set forth nine questions of which a yes answer to (1), (2), (4), or (6) will result in the loan not being approved:

(1) Is the Applicant or any owner of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation in this transaction by any Federal department or agency, or presently involved in any bankruptcy? (Note: See Question 5 – Bankruptcy for meaning of “presently involved in any bankruptcy.”)

(2) Has the Applicant, any owner of the Applicant, or any business owned or controlled by any of them, ever obtained a direct or guaranteed loan from SBA or any other Federal agency (other than a Federal student loan made or guaranteed through a program administered by the Department of Education) that is (a) currently delinquent, or (b) has defaulted in the last 7 years and caused a loss to the government?

(3) Is the Applicant or any owner of the Applicant an owner of any other business, or have common management (including a management agreement) with any other business? If yes, list all such businesses (including their TINs if available) and describe the relationship on a separate sheet identified as addendum A.

(4) Did the Applicant receive an SBA Economic Injury Disaster Loan between January 31, 2020 and April 3, 2020? If yes, provide details on a separate sheet identified as addendum B.

(5) Is the Applicant (if an individual) or any individual owning 20% or more of the equity of the Applicant presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction?

(6) Within the last 5 years, for any felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance, has the Applicant (if an individual) or any owner of the Applicant 1) been convicted; 2) pleaded guilty; 3) pleaded nolo contendere; or 4) commenced any form of parole or probation (including probation before judgment)?

(7) Is the United States the principal place of residence for all employees included in the Applicant’s payroll calculation above?

(8) Is the Applicant a franchise?

(9) Is the franchise listed in SBA’s Franchise Directory? If yes, enter the SBA Franchise Identifier Code.

17. What certifications need to be made?
On Form 2483 and Form 2483-C, the borrower application, an authorized representative of the applicant must certify in good faith to three sets of representations, authorizations, and certifications:

First set:

• I have read the statements included in this form, including the Statements Required by Law and Executive Orders, and I understand them.
• The Applicant is eligible to receive a loan under the rules in effect at the time this application is submitted that have been issued by the Small Business Administration (SBA) and the Department of the Treasury (Treasury) implementing the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, and Title V of the American Rescue Plan Act of 2021 (the Paycheck Protection Program Rules).
• Form 2483: The Applicant, together with its affiliates (if applicable), (1) is an independent contractor, self-employed individual, or sole proprietor with no employees; (2) if not a housing cooperative, eligible 501(c)(6) organization, or eligible destination marketing organization, employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry; (3) if a housing cooperative, employs no more than 300 employees; (4) if an eligible 501(c)(6) organization, other eligible 501(c) organization, or eligible destination marketing organization, employs no more than 300 employees per physical location; (5) if NAICS code 72 or 501(c)(3), employs no more than 500 employees per physical location; (6) if a news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business, a nonprofit public broadcasting entity with a trade or business under NAICS code 511110 or 5151, or an Internet-only news or periodical publisher assigned NAICS code 519130 and engaged in the collection and distribution of local or regional and national news and information, employs no more than 500 employees (or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry) per location; or (7) is a small business under the applicable revenue-based size standard established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry or under the SBA alternative size standard.
• Form 2483-C: The Applicant, together with its affiliates (if applicable), (1) is an independent contractor, self-employed individual, or sole proprietor with no employees; (2) employs no more than the greater of 500 employees or, if applicable, the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry; (3) if NAICS code 72, employs no more than 500 employees per physical location; (4) if an Internet-only news or periodical publisher assigned NAICS code 519130 and engaged in the collection and distribution of local or regional and national news information, employs no more than 500 employees (or the size standard in number of employees established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry) per physical location; or (5) is a small business under the applicable revenue-based size standard established by SBA in 13 C.F.R. 121.201 for the Applicant’s industry or under the SBA alternative size standard.
• I will comply, whenever applicable, with the civil rights and other limitations in this form.
• Form 2483: All loan proceeds will be used only for business-related purposes as specified in the loan application and consistent with the Paycheck Protection Program Rules including the prohibition on using loan proceeds for lobbying activities and expenditures. If Applicant is a news organization that became eligible for a loan under Section 317 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, proceeds of the loan will be used to support expenses at the component of the business concern that produces or distributes locally focused or emergency information. If the Applicant is an Internet-only news or periodical publisher that became eligible for a loan under Section 5001 of the American Rescue Plan Act of 2021, the proceeds of the loan will be used to support expenses at the component of the business or organization that supports local and regional news.
• Form 2483-C: All loan proceeds will be used only for business-related purposes (including payroll and other proprietor expenses, which is business expenses plus owner compensation, as defined in the interim final rule posted on March 3, 2021) as specified in the loan application and consistent with the Paycheck Protection Program Rules including the prohibition on using loan proceeds for lobbying activities and expenditures. If the Applicant is an Internet-only news or periodical publisher that became eligible for a loan under Section 5001 of the American Rescue Plan Act of 2021, the proceeds of the loan will be used to support expenses at the component of the business or organization that supports local or regional news.
• I understand that SBA encourages the purchase, to the extent feasible, of American-made equipment and products.
• The Applicant is not engaged in any activity that is illegal under federal, state or local law.
• Any EIDL loan received by the Applicant (Section 7(b)(2) of the Small Business Act) between January 31, 2020 and April 3, 2020 was for a purpose other than paying payroll costs and other allowable uses for loans under the Paycheck Protection Program Rules.
  
  

Second set:

For Applicants who are individuals: I authorize the SBA to request criminal record information about me from criminal justice agencies for the purpose of determining my eligibility for programs authorized by the Small Business Act, as amended.

Third set (which requires the authorized representative to initial next to each one):

• The Applicant was in operation on February 15, 2020, has not permanently closed, and was either an eligible self-employed individual, independent contractor, or sole proprietorship with no employees, or had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
• Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
• The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable such as for charges of fraud.
• I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, covered utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, and not more than 40% of the forgiven amount may be for non-payroll costs. If required, the Applicant will provide to the Lender and/or SBA documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of eligible expenses for the covered period following this loan.
• The Applicant has not and will not receive another loan under the Paycheck Protection Program, section 7(a)(36) of the Small Business Act (15 U.S.C. 636(a)(36)) (this does not include Paycheck Protection Program second draw loans, section 7(a)(37) of the Small Business Act (15 U.S.C. 636(a)(37)).
• The Applicant has not been approved for a Shuttered Venue Operator (“SVO”) grant from SBA as of the date of this loan application, and the Applicant acknowledges that if the Applicant is approved for an SVO grant before SBA issues a loan number for this loan, the Applicant is ineligible for the loan and acceptance of any loan proceeds will be considered an unauthorized use.
• The President, the Vice President, the head of an Executive department, or a Member of Congress, or the spouse of such person as determined under applicable common law, does not directly or indirectly hold a controlling interest in the Applicant, with such terms having the meanings provided in section 322 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
• The Applicant is not an issuer, the securities of which are listed on an exchange registered as a national securities exchange under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).
• I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
• I acknowledge that the Lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge, and agree that the Lender can share the tax information with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.
  
  

18. Is there a limited safe harbor with respect to certifications concerning need for a First Draw PPP Loan?

Yes, in the updated FAQs, the SBA confirmed that there is safe harbor providing that any First Draw PPP Loan borrower, together with its affiliates, that received a First Draw PPP Loan with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

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Loan forgiveness and increases to First Draw PPP Loans

19. Can the First Draw PPP Loan be forgiven in whole or in part?

Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. An eligible borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes and employee and compensation levels are maintained or, if not, an applicable safe harbor or exemption applies.

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs (including employer contributions for group health, life, disability, vision, and dental insurance), payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, utility payments for service that began before February 15, 2020, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures over the loan forgiveness covered period. Payroll costs that are qualified wages taken into account in determining the Employer Retention Credit are not eligible for loan forgiveness. The “loan forgiveness covered period” is the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.

To receive full loan forgiveness, a borrower must use at least 60% of the First Draw PPP Loan for payroll costs, and not more than 40% of the loan forgiveness amount may be attributable to nonpayroll costs. For example, if a borrower uses 59% of its PPP loan for payroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs.

For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan on payroll costs, then because the borrower used less than 60% of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60% of the forgiveness amount and $36,000 in nonpayroll costs constituting 40% of the forgiveness amount). Because the Economic Aid Act changed the loan forgiveness covered period from either an 8- or 24-week period to a covered period between 8 and 24 weeks at the election of the borrower, the SBA eliminated the “alternative covered period” as defined in the previous interim final rule published at 85 Fed. Reg. 33004, 33006 (June 1, 2020), as amended.

Additionally, an eligible borrower that received a loan of $150,000 or less will not, at the time of its application for loan forgiveness, be required to submit any application or documentation in addition to the certification and information required by paragraph 7A(l)(1)(A) of the Small Business Act. Such borrowers must retain records relevant to the form that prove compliance with the PPP requirements—with respect to employment records, for the 4-year period following submission of the loan forgiveness application, and with respect to other records, for the 3-year period following submission of the loan forgiveness application.

All other borrowers must follow the existing requirements for loan forgiveness applications and records retention. The SBA may review and audit PPP loans of $150,000 or less and access any records the borrower is required to retain. All borrowers with loans of any size must provide documentation independently to a lender to satisfy relevant federal, state, local, or other statutory or regulatory requirements or in connection with an SBA loan review. The Economic Aid Act repealed the CARES Act provision requiring the SBA to deduct EIDL Advance Amounts received by borrowers from the forgiveness payment amounts remitted by SBA to the lender. The EIDL Advance Amount received by the borrower will not reduce the amount of forgiveness to which the borrower is entitled and will not be deducted from the forgiveness payment amount that SBA remits to the lender.

20. What do I need to know about increases in First Draw PPP Loans received prior to ‎December 27, 2020‎‎, and what will the SBA do with “unresolved borrowers” in these situations?

Increases: In certain situations, the Economic Aid Act allows for increases in First Draw PPP Loans received prior to December 27, 2020. Lenders may approve increases on First Draw PPP Loans starting on January 25, 2021. Those situations are:

Partnerships: If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses, but did not include any amount for partner compensation, and the SBA has not remitted a forgiveness payment to the lender on the loan, the lender may electronically submit a request through SBA’s E-Tran Servicing site (“E-Tran”) to increase the PPP loan amount to include appropriate partner compensation, even if the loan has been fully disbursed and even if the lender’s first SBA Form 1502 report to the SBA on the PPP loan has already been submitted. The amount of the increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum loan amount allowed under the PPP, which is $10 million for an individual borrower or $20 million for a corporate group. Additionally, the borrower must provide the lender with all required documentation to support the calculation of the increase to include partner compensation, and the lender must comply with the loan amount underwriting requirements. Any request for an increase must be submitted electronically in E-Tran on or before March 31, 2021 (we expect this to change to May 31, 2021 given the Extension Act), and is subject to the availability of funds.

Under the PPP, partnerships, rather than individual partners, are eligible for a PPP loan, and self-employment income of general active partners could be reported as a payroll cost, up to $100,000 on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred, on a PPP loan application filed by or on behalf of the partnership. For guidance describing how to calculate partnership PPP loan amounts and defining the self-employment income of partners, see How to Calculate Maximum Loan Amounts – By Business Type (March 12, 2021).

Seasonal employer: The Economic Aid Act revised the method by which a seasonal employer may determine its maximum loan amount for purposes of the PPP to allow the seasonal employer to use the average total monthly payments for payroll for any 12-week period selected by the seasonal employer beginning February 15, 2019, and ending February 15, 2020. If a seasonal employer received a First Draw PPP Loan before December 27, 2020, and the SBA has not remitted a forgiveness payment to the lender on that loan, the seasonal employer would be eligible for an increase if application of the methodology in the Economic Aid Act[7] results in the calculation of a higher loan amount. In that case, the lender may electronically submit a request through E-Tran to increase the seasonal employer’s First Draw PPP Loan amount, even if the loan has been fully disbursed and even if the lender’s first SBA Form 1502 report to the SBA on the PPP loan has already been submitted. The amount of the increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower or $20 million for a corporate group). Additionally, the borrower must provide the lender with all required documentation to support the calculation of the increase due to the newly-selected 12 week period, and the lender must comply with the loan amount underwriting requirements. Any request for an increase must be submitted electronically in E-Tran on or before March 31, 2021 (we expect this to change to May 31, 2021 given the Extension Act), and is subject to the availability of funds.

Farmers and ranchers: The Economic Aid Act changed the calculation of the maximum loan amount for certain farmers and ranchers. If an eligible farmer or rancher received a First Draw PPP Loan and the SBA has not remitted a forgiveness payment to the lender on that loan, and such farmer or rancher would be eligible for a higher maximum loan amount based on the new methodology,[1] the lender may electronically submit a request through E-Tran to increase the First Draw PPP Loan amount, even if the loan has been fully disbursed and even if the lender’s first SBA 1502 report to the SBA on the PPP loan has already been submitted. The amount of the increase may not exceed the maximum loan amount to which the borrower is entitled under PPP rules, and in no event can the increased loan amount exceed the maximum PPP loan amount ($10 million for an individual borrower). Additionally, the borrower must provide the lender with all required documentation to support the calculation of the increase under the new methodology, and the lender must comply with the loan amount underwriting requirements. Any request for an increase must be submitted electronically in E-Tran by the lender on or before March 31, 2021 (we expect this to change to May 31, 2021 given the Extension Act), and is subject to the availability of funds.

Special situations: The following borrowers can reapply or request an increase in their First Draw PPP Loan amount:

1. Eligible borrowers that fully repaid a First Draw PPP Loan before December 27, 2020: If an eligible borrower received a First Draw PPP Loan, the lender reported to the SBA before December 27, 2020 that the borrower fully repaid the loan, and the SBA has not remitted a forgiveness payment to the lender on that loan, the borrower may reapply for a new First Draw PPP Loan in an amount for which the borrower is eligible under current PPP rules.[8] All reapplications are subject to the availability of funds. Lenders may approve such a reapplication if the borrower is eligible for a First Draw PPP Loan under current PPP rules. The reapplication procedure depends on whether the lender reported the loan to the SBA as “cancelled” or “paid in full” as a result of the borrower’s repayment before December 27, 2020. The reapplication procedure applies only to those loans reported as “cancelled” or “paid in full” by the lender because the borrower returned the full amount of the original loan amount prior to December 27, 2020.
2. Borrowers that returned part of a First Draw PPP Loan before December 27, 2020: If a borrower returned (or repaid) part of a First Draw PPP Loan, the lender reported to the SBA before December 27, 2020 that the borrower repaid the loan in part, and the SBA has not remitted a forgiveness payment to the lender on that loan, the lender may approve a borrower’s request for a loan increase and re-disburse funds equal to the difference between the amount retained by the borrower and the amount previously approved. After re-disbursing the loan increase amount, the lender must ensure that the loan amount and status are correctly reported on the next 1502 report submitted by the lender. Any re-disbursement of the increased amount must be reported by the lender on a 1502 report on or before March 31, 2021 (we expect this to change to May 31, 2021 given the Extension Act), and is subject to the availability of funds.
3. Borrowers that did not accept the full amount of a First Draw PPP Loan for which they were approved: If a borrower did not accept before December 27, 2020 the full amount of a First Draw PPP Loan for which it was approved in E-Tran and the SBA has not remitted a forgiveness payment to the lender on that loan, the borrower may request an increase and the lender may approve and disburse a loan increase in the amount of the First Draw PPP Loan up to the amount previously approved. The process for obtaining the loan increase in this situation differs depending on how the lender previously reported to the SBA before December 27, 2020 that the borrower did not accept the full amount of the First Draw PPP Loan.

If the lender reported the loan as partially disbursed for the lower amount and did not process a decrease of the loan in E-Tran, the lender may make a second disbursement on the loan to the borrower up to the full approved amount in E-Tran, provided that the SBA has not remitted a forgiveness payment to the lender on that loan. If the lender processed a decrease of the approved loan amount in E-Tran, the lender may process an increase on the loan. Any request for an increase must be submitted electronically by the lender in E-Tran on or before March 31, 2021 (we expect this to change to May 31, 2021 given the Extension Act), and is subject to the availability of funds.

Unresolved Borrowers: If a First Draw PPP Loan is under review pursuant to PPP rules and/or information in the SBA’s possession indicates that the borrower may have been ineligible for the First Draw PPP Loan it received or for the loan amount received by the borrower, the lender will receive notification from the SBA when the lender submits a request for increase of the First Draw PPP Loan or submits a reapplication for a First Draw PPP Loan (“unresolved borrower”). If the lender receives notification of an unresolved borrower, the lender will not be able to process an increase on the First Draw PPP Loan, nor will the lender be able to obtain an SBA loan number on a First Draw PPP Loan reapplication. The SBA will resolve expeditiously the issue related to the unresolved borrower and will notify the lender of the process to obtain an increase on the First Draw PPP Loan or obtain a loan number on a First Draw PPP Loan reapplication, if appropriate.

The SBA issued additional guidance to lenders on (i) First Draw PPP Loan increases after enactment of the Economic Aid Act regarding the reapplication and request process in SBA Procedural Notice 5000-20076 effective January 13, 2021; (ii) procedures for addressing unresolved issues on Borrower First Draw PPP Loans effective January 26, 2021; (iii) revised SBA PPP procedures for addressing hold codes on First Draw PPP Loans and Compliance Check Error Messages on First Draw PPP Loans and Second Draw PPP loans effective February 10, 2021; and (iv) second notice of revised procedures for addressing hold codes and compliance check error messages on PPP loans effective March 29, 2021.  

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The SBA may provide further guidance, if needed, through SBA notices and program guides, which are to be posted on the SBA and the Department of Treasury’s websites.

We expect further guidance and expect to update our materials. We encourage you to visit Schwabe’s COVID-19, CARES Act, and PPP Portal resource pages frequently for information. This article summarizes aspects of the law.  It does not constitute legal advice. For legal advice for your situation, you should contact an attorney.

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[1] For purposes of this article and the IFR, first round Paycheck Protection Program (“PPP”) Loans are “First Draw PPP Loans,” and second round loans are “Second Draw PPP Loans,” and “section 7A of the Small Business Act” refers to the redesignated section 1106 of the CARES Act. 

[2] See Question 6.

[3] See Question 7 regarding the applicability of affiliation rules at 13 CFR 121.103 and 121.301 to PPP loans.

[4] Under the SBA’s alternative size standard, a business concern may qualify as a small business concern if it, together with any affiliates: (1) has a maximum tangible net worth of not more than $15 million; and (2) the average net income after federal income taxes (excluding any carry-over losses) for the two full fiscal years before the date of application is not more than $5 million.

[5] Under the IFR, a “destination marketing organization” means (1) the organization does not receive more than 15% of its receipts from lobbying activities; (2) the lobbying activities of the organization do not comprise more than 15% of the total activities of the organization; (3) the cost of the lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year of the organization that ended prior to February 15, 2020; (4) the organization employs not more than 300 employees; and (5) the organization (a) is described in section 501(c) of the IRC and exempt from taxation under section 501(a) of the IRC; or (b) is a quasi-governmental entity or is a political subdivision of a state or local government including any instrumentality of those entities. The Economic Aid Act contains the following wording for this last requirement: “… or (II) a State, or a political subdivision of a State (including any instrumentality of such entities) - (aa) engaged in marketing and promoting communities and facilities to businesses and leisure travelers through a range of activities, including -- (AA) assisting with the location of meeting and convention sites; (BB) providing travel information on area attractions, lodging accommodations, and restaurants; (CC) providing maps; and (DD) organizing group tours of local historical, recreational, and cultural attractions; or (bb) that is engaged in, and derives the majority of the operating budget of the entity from revenue attributable to, providing live events.”

[6] For housing cooperatives, section 501(c)(6) organizations, and destination marketing organizations, the applicable size standard is not more than 300 employees.

[7] See Question 6.

[8] According to the SBA, any First Draw PPP Loan reported as “paid in full” by a lender due to the SBA’s remittance of a forgiveness payment in any amount to the lender is not eligible for a reapplication. However, the borrower may be eligible for a Second Draw PPP Loan.