We Are Sunshine

Important Details About New Round of Pandemic Relief Funding for Small Businesses

Tuesday, January 5th, 2021

On December 27, 2020, President Trump signed into law the $900 billion pandemic relief package that supplies an additional $284 billion in aid for struggling businesses, including a second round of the Paycheck Protection Program (PPP).

Salon owners should contact their local SBA lender for an application and guidance to start preparing financials for submission as these funds will be limited.

Segments of the following were sourced from Parker Poe Adams & Bernstein LLP:

Many of the relief bill’s modifications apply retroactively to those existing PPP borrowers that have not yet had their PPP loans forgiven in addition to those businesses applying for a PPP loan for the first time or for a “second draw” PPP loan. PPP funds from the relief bill are available to both certain businesses that were previously issued a PPP loan (referred to as “second draw” PPP loans), and businesses that have never received a PPP loan but now decide to apply (referred to as “initial” PPP loans). To receive a second draw PPP loan under the relief bill, a business must:

  • Have 300 or fewer employees. Importantly, this 300 employee cap includes employees of both domestic and international affiliates. Additionally, this 300 employee cap applies whether or not a business might otherwise qualify as a “small business concern” with more than 300 employees based on its North American Industrial Classification System (NAICS) code. This is in contrast to initial PPP loans where business may qualify with more than 500 employees so long their NAICS code allows for more employees under the SBA’s size standards. However, important exceptions do apply if a business has a NAICS code beginning with 72 (NAICS 72 businesses), which indicates the business is in the accommodation or food services sector:
    • If the NAICS 72 business has multiple physical locations, then it may still qualify so long as there are 300 or fewer employees per physical location.
    • The SBA’s traditional affiliation rules are waived for NAICS 72 businesses when determining the 300 employee cap.
  • Have already used, or will use, the full amount of their prior PPP loan.
  • Demonstrate at least a 25% reduction in gross receipts for either 2020 Q1, Q2, Q3, or Q4 compared to the same quarter of 2019.

For those borrowers seeking an initial PPP loan under the relief bill, the same requirements for qualifying for the PPP first established under the CARES Act still apply, unless specifically modified by the relief bill.

  • For example, just as under the CARES Act a small business concern may qualify for an initial PPP loan so long as it has 500 or fewer employees (including those of domestic and international affiliates), but this employee cap may be higher depending on the applicable NAICS code. Additionally, an initial PPP loan is still capped at the lower of (a) 2.5 times the business’s average monthly payroll costs or (b) $10 million. However, the relief bill now allows certain 501(c)(6) tax-exempt nonprofit organizations to qualify for an initial PPP whereas previously the only nonprofit organizations that could quality were 501(c)(3) and 501(c)(19) organizations. Additionally, the relief bill explicitly bars publicly traded businesses as well as China-affiliated businesses from qualifying for an initial PPP whereas the CARES Act did not contain such prohibitions. Businesses considering an initial PPP loan should review their eligibility carefully and be aware that the determination may be different compared to any analysis done in the spring of 2020.
  • Whether applying for a second draw or initial PPP loan, a business (a) must have been in existence prior to February 15, 2020 and (b) apply no later than March 31, 2021.

How much can an eligible PPP borrower be issued under the relief bill, and what can the PPP loan proceeds be used for?

  • An applicable borrower’s PPP loan under the relief bill is capped at the lower of (a) 2.5 times the applicant’s monthly payroll costs in the one year prior to the loan (3.5 times monthly payroll for NAICS 72 businesses) or (b) $2 million (except for initial PPP borrowers who are capped at $10mm).
  • The relief bill leaves in place the requirement for loan forgiveness that at least 60% of the PPP loan (whether second draw or initial) be used on payroll expenses. The relief bill allows both new borrowers and those that have not yet applied for forgiveness to spend any PPP loan funds not used for payroll on four new categories of expenses in addition to those already approved under the CARES Act:
    • Covered operation expenditures. These expenses include: “a payment for any business software or cloud computing software that facilitates business operations, product or service delivery, [payroll expenses], human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.”
    • Covered property damage. PPP loans can now be used to pay for “a 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.” It is not yet clear what “public disturbances” include, but it can be assumed the definition will encompass property damage inflicted by the summer’s public demonstrations.
    • Covered supplier costs. These expenses include the cost of goods that:
      • “Are essential to the operations of the entity at the time at which the expenditure is made.”
      • Are purchased pursuant to: (1) a contract, order, or purchase order in effect at any time before the PPP loan’s covered period, or (2) with respect to perishable goods in effect before or at any time during the PPP loan’s covered period.
  • Covered worker protection. These are operating costs to facilitate the adaptation of a business activity to comply with the COVID-19 guidelines or requirements of the Department of Health and Human Services, the Centers for Disease Control, Operational Safety and Health Administration, or State and local governments. Covered worker protections include, but are not limited to:
    • The purchase, maintenance, or renovation of: a drive-through window, air pressure ventilation or filtration system, physical barriers such as a sneeze guard, additional indoor or outdoor business space, an onsite or offsite screening capability, or personal protective equipment.

What are the key changes to the PPP loan forgiveness process under the relief bill?

  • The SBA may only forgive PPP loan funds utilized during the “covered period.” The CARES Act required a covered period to be either 8 or 24 weeks. For loans issued after the effective date of the relief bill, a borrower may select any period between 8 weeks to 24 weeks as its covered period. The relief bill creates a simplified forgiveness process for borrowers of $150,000 or less (whether the PPP loan was issued before or after the effective date of the relief bill). It requires the Small Business Administration (SBA) to release the certification form for this simplified forgiveness process within 24 days from the passage of the relief bill. The certification form is expected to be a one-page forgiveness application that asks for information such as: the estimated amount of the PPP loan spent on payroll costs, the total value of the PPP loan, and the number of employees retained due to the loan.
  • The relief bill also modifies the loan forgiveness rules as they apply to advances received with respect to Economic Injury Disaster Loans (EIDL). Now, the total forgiveness amount is not to be reduced by any EIDL advance received by a borrower within its fiscal year. The relief bill directs the SBA to issues rules by January 11, 2021 that “ensure the equal treatment” of those borrowers that received EIDL advances and completed their forgiveness application prior to the effective date of the relief bill.

Many of the relief bill’s new rules are nuanced and contain exceptions or modifications applicable only to certain businesses. Salon owners should contact their lenders to see what, if anything, they can do now to be in a position to apply when new applications begin to be accepted.