As we start the new year, and hope that we’ve seen the worst of the Pandemic, the economic effects of the pandemic continue to be felt hardest by small businesses and the self-employed. As a response, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”) was signed into law last month. Accordingly, beginning on January 11, 2021, the Economic Aid Act reopens the Paycheck Protection Program (“PPP”) application process, and provides borrowers with greater flexibility in using PPP Loan proceeds as well as expanding the types of expenses eligible for loan forgiveness.
For all those that missed out on the first round of PPP money, the Economic Aid Act allows first-time borrowers, even those that had a prior application denied, to submit an application for a First Draw PPP Loan. Application for First Draw PPP Loans will be accepted through March 31, 2021.
There are important distinctions between the qualifications of First Draw Loan eligibility from that of a Second Draw PPP Loan. However, in all cases, borrowers must belong to one of the following groups:
Most first-time borrowers can borrow up to the average monthly payroll costs (multiplied by 2.5), so long as it does not exceed $10 million. Restaurants, hotels, and other hospitality businesses may receive up to 3.5 times average monthly payroll.
The funds for the first round of PPP money quickly ran out when the program first opened to small businesses in April 2020. Since the pot was replenished on April 27th, there has been plenty of cash and businesses have been slow to take advantage.
Under the new act, those that have already benefited from a First Draw PPP Loan can go back to the well for a second draw of PPP money. To re-apply and receive a Second Draw PPP Loan of up to $2 million, borrowers meet the following criteria:
The PPP Loan does not have to be repaid so long as the funds are used for:
The Economic Aid Act has expanded the permissible use of PPP loan proceeds to include:
Under the CARES Act, a debtor in bankruptcy was disqualified from participation in the PPP Loan program. It hardly seemed fair that those in the grimmest circumstances would be precluded from desperately needed cash. Under the Economic Aid Act, borrowers in bankruptcy are now eligible to apply for PPP money. The loan must still be approved by the Bankruptcy Court and payments are treated as an administrative claim, meaning that the loan and the payments are preferred over most other creditors, and to the extent that they are not forgiven, must be paid in full.
The law firm of Scura, Wigfield, Heyer, Stevens & Cammarota have a team of attorneys devoted to helping small business debtors and individuals avail themselves of the protections and tools bankruptcy provides. Attorneys at the firm are available for free consultations to potential clients and eager to offer assistance to fellow practitioners looking for guidance in the world of bankruptcy.