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Economic Aid to Hard-Hit Nonprofits Act summarizes the terms, eligibility and application requirements of the new Payment Protection Program loan (PPP 2 Loans) under the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law create a new Paycheck Protection Program (PPP) loan (PPP 2 Loans) available to charities that received PPP loans pursuant to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that was signed into law last spring. PPP 2 Loans are available through participating lenders until March 31, 2021 unless appropriated funds are depleted sooner. The Small Business Administration (SBA) and US Treasury issued INTERIM RULES implementing the PPP 2 Loan program on January 6. Set forth below is a high- level summary of the PPP 2 Loan program as implemented by the Interim Rules.
Terms — Terms for the PPP 2 Loans are generally the same as the terms applicable to PPP 1 Loans. Those terms include the following:
(1) 100 percent SBA guarantee;
(2) no collateral is required;
(3) no personal guarantees are required;
(4) one percent interest rate;
(5) five year maturity;
(6) loans will be forgivable under the same terms of PPP1 and
(7) lenders may make such loans under delegated authority from the SBA and rely on borrower’s certifications regarding eligibility.
Economic Aid to Hard-Hit Nonprofits Act
- Operations — a PPP 2 applicant must (1) have been in business on February 15, 2020, (2) have had a PPP 1 Loan where the full amount of such loan was utilized or will be utilized prior to disbursement of the PPP 2 Loan, and (3) have used the proceeds of its PPP 1 Loan only for eligible expenses under the existing PPP program rules.
- Employees — Maximum of 300. PPP borrowers that were eligible for PPP 1 Loans based on a “per location” analysis.
- Gross Receipts — To qualify, a PPP borrower must show at least a 25 percent reduction in gross receipts in Q1, Q2, Q3, or Q4 of 2020, as compared to the same quarter in 2019. The Interim Rules also provide that a PPP borrower that was in operation for all four quarters of 2019 is deemed to satisfy this revenue reduction requirement if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019, and the borrower submits annual tax forms substantiating such revenue decline. Forgiveness amounts received pursuant to PPP 1 Loans are excluded from a borrower’s gross receipts calculation.
- Business Lines — Ineligible entities continue to be those set forth in the CARES Act with the exception of non-profits and religious institutions.
Maximum PPP 2 Loan Amount — Calculation is based on 2.5x of monthly payroll expenses in the year prior to the PPP loan origination, calendar year 2020, or calendar year 2019. Maximum PPP 2 Loan amount: $2 million.
Eligible Expenses — Includes those applicable to PPP 1 Loans (payroll costs, mortgage payments, rental payments, utility payments) plus the following:
- (1) covered operations expenditures — includes payments for software or cloud computing;
- (2) covered supplier costs — includes goods that were essential to the charity at the time the expenditure was made and such expenditures were made pursuant to a contract;
- (3) covered worker protection expenditures — includes expenses required to comply with governmental requirements (including sneeze guards, ventilation systems, and the expansion of outdoor space) and personal protective equipment costs (these costs can be incurred any time after March 2020); and
- (4) covered property damage costs — includes costs related to looting or vandalism in 2020 that were not covered by insurance or other compensation.
Number of Loans — Only one PPP 2 Loan may be obtained by a borrower.
Period — No less than eight weeks after origination and no more than 24 weeks after origination.
Economic Necessity Certification — Borrower must make the same certification made in connection with a PPP 1 Loan (current economic conditions make the loan request necessary).
Forgiveness — All “eligible expenses” (defined above) incurred during the covered period are eligible for forgiveness; however, the 60 percent/40 percent ratio for payroll costs, as compared to other eligible expenses that applied to PPP 1 Loan forgiveness calculations, applies to PPP 2 Loan forgiveness calculations.
Application Requirements — Each PPP 2 lender must use either the SBA’s application form or create a form that is substantially similar. Pursuant to the Interim Rules, PPP 2 applicants must also provide documentation to support the 25 percent revenue reduction requirement. This documentation may consist of relevant tax forms, quarterly financial statements or bank statements. PPP lenders are required to perform a “good faith review, in reasonable time” of a PPP 2 Loan applicant’s calculations and supporting documentation.
PPP 1 Borrowers with Loans Under Review by SBA — Where the SBA has information that a PPP 1 borrower may not have been eligible for such loan, the lender will receive a notice from the SBA when it submits the PPP 2 Loan application, and no SBA loan number will be provided until an eligibility determination has been made. The Interim Rule states that the SBA will “resolve issues related to unresolved borrowers expeditiously.”
As of the date of this client alert, it cannot be determined when PPP lenders will receive PPP 2 applications or when the SBA will begin to accept such applications for processing. Moreover, it cannot be determined whether all lenders that participated in PPP 1 Loans will participate in the PPP 2 Loan program. It is likely, however, that PPP lenders participating in the PPP 2 program will need to adjust internal resources to account for the demand the program will generate given the program’s limited duration and funding. This potential shift in the use of lenders’ internal resources may result in a delay in processing forgiveness applications for PPP 1 loans.
Stay tuned, INSIDE CHARITY will continue to keep you apprised as we learn more. For instance, our bank, Wells Fargo opened our PPP 2 loan application portal on Friday of last week.
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