The pandemic relief package, the Consolidated Appropriations Act, 2021 (“CAE”) gives a break to small businesses by reopening the Paycheck Protection Program (PPP) so that some of the hardest-hit small businesses can apply for a second loan.

The new round of loans will be limited to those with fewer than 300 employees that have seen drops of at least 25 percent in revenue during the first, second, or third quarter of 2020 compared with those quarters in 2019. Applicants can use the fourth quarter 2020 compared to the fourth quarter 2019 if applying for the loan after January 1, 2021. It also:

• Reduces the amount a borrower can receive from $10 million to $2 million
• Gives businesses more flexibility on how they spend the money
• Simplifies the forgiveness process for loans under $150,000

The measure carves out $12 billion for minority-owned businesses, with $20 billion for new Economic Injury Disaster Loan grants. According to Small Business Administration guidance, these loans are designed to meet financial obligations and operating expenses that could have been met had the disaster not occurred.

In addition, the law creates a $15 billion grant program for live venues, theaters, and museum operators that have lost at least 25 percent of their revenue. The initial grant can total up to $10 million per eligible business. A second grant, worth half the amount of the first, may also be available. The money will be for specific expenses such as payroll costs, rent, utilities, and personal protective equipment. Priority will be given to those who have faced 90 percent revenue loss.

Washington has also amended and extended the Employee Retention Credit (ERC), and the availability of certain advance payments of the tax credits, under section 2301 of the CARES Act. The ERC under the CARES Act was designed to encourage businesses to keep employees on their payroll. The refundable tax credit was originally 50 percent of up to $10,000 in wages paid by an eligible employer whose business had been financially impacted by COVID-19. The cash benefits of the ERC are material and immediate. PPP loan forgiveness applications may also be affected by the ERC. Please contact your R&A advisor for assistance in determining your specific situation.

Details on PPP Loans

Businesses that received PPP loans would be able to take tax deductions for the expenses covered by forgiven loans—this was a much-discussed feature. Not all states, however, conform to the federal tax treatment of PPP loans which could cause income or nondeductible expenses at the state level.

There will be $3.5 billion for continuing the Section 7(a) Debt Relief program and $2 billion for enhancements to Small Business Administration (SBA) lending.

As before, PPP loans are backed by the SBA but issued by financial institutions, such as banks, credit unions, fintech companies, and community lenders. Interested businesses should check to see whether a specific lender is participating. SBA figures show 5,460 lenders were taking part when the initial PPP closed in August 2020.

The SBA is issuing all final guidance and rules as the program reopens so every eligible business can participate. An SBA representative said the agency and the Treasury are committed to launching the next round of PPP as quickly as possible; to working to identify changes to program rules, forms, and processes as laid out in the legislative text; and to appropriately updating guidance and systems for PPP lenders and borrowers.

This is just a summary of a complex series of provisions nestled in a 5,000-page bill. There are other rules and exceptions, and as more guidance is made available, new details modifying these provisions may come to light. Keep an eye on the SBA website for additional information, and most importantly, stay in touch with R&A for more details.