Summary of Key Changes and Expansion of the Paycheck Protection Program under the Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act, 2021 (the "CAA"), which provides $900 billion in new COVID-19 relief funding, was signed into law on December 27, 2020. Title III of the CAA, the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the "Hard Hit Act"), renews until March 31, 2021 and expands upon the Paycheck Protection Program (Section 36 of Section 7(a) of the Small Business Act) (the "PPP" and loans made under such program, "PPP Loans") implemented by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The Hard Hit Act appropriates a total of $284.45 billion for the PPP and the new Paycheck Protection Program Second Draw Loan Program (the "Second Draw Program" and loans made under such program, "Second Draw Loans") (Section 37 of Section 7(a) of the Small Business Act), composed of $147.45 billion of additional funding for the existing PPP and $137 billion for the Second Draw Program. This additional funding for the existing PPP program brings total appropriations for that program-date to $806.45 billion.

The Hard Hit Act further allocates portions of that $284.45 billion appropriation for PPP Loans and Second Draw Loans for specific categories of lenders and borrowers. On the lender side, the Hard Hit Act sets aside a total of $30 billion for PPP and Second Draw Loans issued by (a) community financial institutions, including community development financial institutions (CDFIs) and minority depository intuitions (MDIs) and (b) by certain small depository institutions ($15 billion in the case of each of (a) and (b)). On the borrower side, the Hard Hit Act sets aside (x) $35 billion for first-time borrowers and (y) $25 billion for second draw PPP Loans for smaller borrowers with 10 or fewer employees, or loans less than $250,000 in low- or middle-income areas.

In addition to the PPP, the Hard Hit Act appropriates an additional $20 billion in new funds for the Economic Injury Disaster Loan program.

  1. Paycheck Protection Program, Round 3.

The following identifies key elements of the PPP as detailed in the Hard Hit Act. Many of the changes implemented by the Hard Hit Act retroactively amend the terms of the PPP (implemented by the CARES Act, as amended in the months since its enactment 1) other than for PPP Loans that are already forgiven. Consequently, potential borrowers should presume that except where a change is expressly made in the Hard Hit Act, the PPP terms set out in the CARES Act and in the U.S. Small Business Administration (the "SBA") rules governing 7(a) loans, rules and interim final rules produced specifically for the PPP, "frequently asked questions", and procedural notices ("Existing PPP Rules") produced by the SBA remain applicable. Some of the changes to Section 36 in the Hard Hit Act in fact amend the program to codify Existing PPP Rules. For a summary of the Paycheck Protection Program prior to giving effect to the Hard Hit Act, see our standing client alert: Paycheck Protection Program - Where Are We Now?2

  1. Borrower Eligibility, Permitted Uses and Other Notable Changes to the Existing Paycheck Protection Program.

Program Duration. The PPP is extended and now expires on March 31, 2021.

Who is Eligible? In addition to the businesses, nonprofit organizations, Tribal business concerns, and veterans organizations that satisfy the eligibility size standard (which is generally that it has no more than 500 employees)3 that are already eligible under the CARES Act to receive PPP Loans, the Hard Hit Act adds:

  • Housing Cooperatives - Cooperative housing corporations as defined in section 216(b) of the Internal Revenue Code of 1986 that employ not more than 300 employees. In assessing eligibility, the SBA's affiliation rules apply to Housing Cooperatives.
  • Broadcast News Organizations - (a) news organizations (including FCC-licensed broadcasters) that employ no more than 500 employees or the applicable NAICS size standard and (b) public college or university broadcasting entities 4 may receive a PPP Loan if two eligibility requirements are satisfied: (i) it is majority owned or controlled by a business concern that is assigned a NAICS beginning with 511110 (Newspaper Publishers) or 5151 (Radio or Television Broadcasting)or, with respect to a public broadcasting entity, has a trade or business that falls under such a code; and (ii) it makes a good faith certification that loan proceeds will be used to support expenses in producing or distributing locally focused emergency information. Such borrowers are exempt from the SBA's affiliation rules, therefore newspapers, TV and radio broadcasters, and such public broadcasters with multiple locations or stations can receive a PPP Loan on a location-by-location basis subject to the existing PPP rules about maximum PPP Loans per corporate group (see below). Such borrowers are referred to herein as a "News Entities."
  • 501(c)(6) Organizations (Generally) - A 501(c)(6) organizations is eligible to receive a PPP Loan so long as: (i) it is not a professional sports league or organization that has a purpose of promoting or participating in a political campaign or other activity; (ii) such organization does not receive more than 15% of its receipts from lobbying activities; (iii) lobbying activities of the organization do not comprise more than 15% of the total activities of the organization; (iv) the total cost of the organization's lobbying activities did not exceed $1,000,000 during the most recent tax year of the organization that ended prior to February 15, 2020; and (v) the organization does not employ more than 300 employees. In assessing eligibility, the SBA's affiliation rules apply to such (otherwise eligible) 501(c)(6) organizations. Such borrowers are referred to herein as "Eligible 501(c)(6) Organizations."

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Footnotes

1. Specifically by Paycheck Protection Program and Health Care Enhancement Act in April 2020, the Protection Program Flexibility Act in June 2020, and the Paycheck Protection Program Extension Act in August 2020.

2. This publication is intended to identify just the key changes implemented by the Hard Hit Act for the PPP experienced reader, and Where Are We Now will be updated to reflect these latest changes to the program (and any future changes) as has been the case over the past year.

3. Unless otherwise expressly stated, an applicant must (i) qualify as a "small business concern" under the SBA's size standards for the applicable North American Industry Classification System (NAICS) code; (ii) have not more than 500 employees (on a full-time, part-time or other basis); (iii) meet an "alternative size standard" test of having not more than $15 million in tangible net worth and not more than $5 million in average net income after Federal income taxes for the two) full fiscal years prior to the date of application; or (iv) in the case of businesses in the "accommodation and food services" sector (NAICS code beginning with 72), have not more than 500 employees per physical location. The SBA's affiliation rules apply in calculating employee headcount, other than for accommodation and food service businesses, certain franchises, SBIC portfolio companies, faith-based organizations where the application would "substantially burden" religious exercise, and certain additional limited statutory exceptions.

4. Defined as nonprofit organization or organization otherwise subject to section 511(a)(2)(B) of the Internal Revenue Code of 1986 that is a public broadcasting entity. While not expressly stated, it should be presumed that the eligibility size standards generally applicable to PPP borrowers (e.g., a cap of 500 employees) apply to such entities.

Where Are We Now? - Paycheck Protection Program Redux

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.