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Next stimulus package may include PPP sequel

On Behalf of | Jul 27, 2020 | Business Law

Senate Republicans have announced a framework for the HEALS Act, which will include a Round 2 of the Paycheck Protection Plan.

A lot of provisions will remain the same (i.e., 2.5x monthly payroll will set the loan amount). But there are some key differences in the first draft of the bill:

  • Loans are capped at the greater of: (1) $2 million and (2) 2.5x monthly payroll costs during the 1-year period before the loan (or a different period for seasonal or new businesses).
  • To be eligible, a borrower must:
    • Have 300 or fewer employees, and
    • Have suffered a 50% or more of revenue reduction, calculated by comparing…
      • Q1 or Q2 2020, with
      • the same quarter in 2019 (unless the company was not in business, in which case a different quarter may be used).
  • There is a set-aside of $10 billion in loans for companies with 10 employees or fewer.
  • New eligibility for 501(c)(6) organizations, which include business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.
  • In addition to the original PPP purposes, borrowers may use funds for (and receive forgiveness credit for):
    • a payment 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,
    • cost 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
    • expenditure made by an entity to a supplier of goods pursuant to a contract in effect before February 15, 2020 for the supply of goods that are essential to the operations of the entity at the time at which the expenditure is made
    • capital expenditure that is required 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, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020 and ending December 31, 2020 related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19 (including a drive-through window facility; an indoor, outdoor, or combined air or air pressure ventilation or filtration system; a physical barrier such as a sneeze guard; an indoor, outdoor, or combined commercial real property; and an onsite or offsite health screening capability).
    • Face masks, or other personal protective equipment.
    • At least 60 percent must be used for payroll.
  • Lender fees will be 3 percent of principal for loans up to $350,000 and 1 percent of loans above $350,000.
  • The borrower will be permitted to select a covered period that ends either: (1) 8 weeks after funding of the loan, or (2) December 31, 2020. In other words, the 24-week period is eliminated as an option.
  • Seasonable businesses may apply with a more favorable loan-calculation period
  • Simplifying forgiveness for small loans.
    • For loans of $150,000 and less, the borrower only needs to certify that it “made a good faith effort” to comply with the requirements of the PPP program, and must keep records to that effect for 3 years.
    • For loans between $150,000 and $2 million, the borrower need not submit the backup documentation, so long as it is maintained for a 3-year period. A lender needs to only review the certifications and ensure the application is complete.

In addition, Sen. Rubio announced a second type of loan (not under the PPP umbrella) designed to benefit minority-owned businesses. To be eligible, a company must (1) be located in a low-income community (based on Census tract) or be a seasonal employer, and (2) have 500 or fewer employees. These loans have a 20-year maturity period, with interest at 1%. The principal amount of this loan will be calculated by 2x annual revenue.

In other PPP news:

  • The deadline to apply for version 1 of PPP loans ends August 8.
  • Lenders will be permitted to submit forgiveness applications beginning August 10, through SBA’s newly developed portal.

I will continue to update this blog post as the Senate reveals the precise terms of the HEALS Act. Contact me at [email protected].

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