Congress Passes $900B COVID-19 Relief Bill, Addresses Key PPP Issues

Bowles Rice Banking and Financial Services e-Alert
Congress Passes $900B COVID-19 Relief Bill,
Addresses Key PPP Issues

On December 21, 2020, the U.S. Senate and House of Representatives overwhelmingly passed the Consolidated Appropriations Act, 2021, which includes a $900 billion COVID-19 relief bill. A key provision of the bill designates $325 billion in aid for small businesses, which includes more than $284 billion for the U.S. Small Business Association (SBA) Paycheck Protection Program (PPP).

In addition to providing a second round of PPP loans and a simplified forgiveness process, the bill addresses the following key issues relating to the PPP:

  • Ensures tax deductibility for business expenses paid with forgiven PPP loans;
  • Repeals the requirement that borrowers deduct the amount of any Economic Injury Disaster Loan (EIDL) advances from their PPP forgiveness amount; and
  • Extends Troubled Debt Restructurings (TDRs) through January 1, 2022.

The bill creates a second round of PPP loans for businesses that: (i) have no more than 300 employees; (ii) demonstrate at least a 25% reduction in gross revenue in comparable quarters in 2019 and 2020; and (iii) used all proceeds of first PPP loan if borrower received such loan. In addition to the costs eligible for forgiveness in the first round of PPP, the second round of PPP also provides forgiveness for: (i) certain costs related to operations expenditures; (ii) property damage costs not covered by insurance; (iii) expenditures to a supplier pursuant to a contract, purchase order or order for goods in effect prior to taking out the loan that are essential to the borrower's operations; and (iv) costs incurred to purchase personal protective equipment and safety measures to comply with COVID-19 safety guidelines. To be eligible for full loan forgiveness, borrowers will have to spend at least 60% of the funds on payroll over a covered period of either eight or 24 weeks, at borrowers option.

As with the first round of PPP, borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, but the maximum PPP2 loan amount has been cut from $10 million to $2 million. Accommodation and food service businesses, including hotels and restaurants, are eligible to receive 3.5 times their average monthly payroll costs. The new bill also includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

The bill repeals the Section of the CARES Act that requires borrowers to deduct the amount of any EIDL advance from their forgiveness amount. This provision is retroactive and those borrowers who have already applied for and received loan forgiveness should be reimbursed for any reduction in their forgiveness amount because of an EIDL advance.

Lenders may rely on the documentation and certifications submitted by borrowers. If lenders act in good faith and all relevant statutory and regulatory requirements are satisfied, lenders are not subject to enforcement action for any falsehoods contained in borrowers' documentations and certifications.

The new COVID-19 relief bill has also simplified the PPP loan forgiveness process for loans of $150,000 or less. Specifically, a borrower will receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length; includes a description of the number of employees the borrower was able to retain because of the loan; the estimated total amount of loan funds spent on payroll costs; and the total loan amount. This provision applies retroactively to all PPP loans.

The new relief bill specifies that business expenses paid with forgiven PPP loans are tax-deductible. It clarifies that "no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided" by Section 1106 of the CARES Act. This provision applies to loans under PPP and PPP2.

The bill extends the termination date of the CARES Act provision which allows banks greater flexibility when classifying a credit as a Troubled Debt Restructurings (TDR). The original relief was set to expire on December 31, 2020. The bill extends the relief until January 1, 2022.

The SBA has 10 days from the passage of the bill to issue regulations implementing these new provisions.

A copy of the bill is available for download here.

For more information
Bowles Rice continues to closely monitor federal, state and local developments related to the novel coronavirus pandemic. Be sure to visit the CARES Act / COVID-19 Response Team page on our website for a comprehensive listing of available services.

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