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Proposed PPP Revival Makes Key Changes to Eligibility and Forgiveness

  • New round of PPP provides $284.5 billion for loans to small businesses
  • Requirements become more stringent in a number of areas, but businesses that previously received a loan can still apply for a second one
  • Loans capped at $2 million, with simplified forgiveness for loans of $150,000 or less

The $900 billion economic stimulus package approved in Congress on Monday includes a revival of the popular Paycheck Protection Program, which offers forgivable loans to small businesses. It also makes a number of changes to the program, including who is eligible, how the loans are forgiven, and what costs are covered.

It remains to be seen whether this bill will become law. Donald Trump criticized the legislation as unsatisfactory and sent it back to Congress, saying in part that it lacked enough money to support small businesses and restaurants.

A total of $284.5 billion has been allocated for PPP lending. The legislation also provides $20 billion for grants through the Economic Injury Disaster Loans program; $15 billion in grants to performing arts organizations, theaters, and cultural institutions; and $12 billion to assist low-income and minority communities.

In general, the new program zeroes in on small businesses and those that have experienced significant revenue shortfalls due to the COVID-19 pandemic. It also addresses a variety of shortcomings with the original PPP.

While the start date for the program has not yet been set, the program will be open to applications through March 31.

Who is eligible

The second round of PPP funding is open to both first-time applicants and borrowers who previously received a loan under the program. However, there are different qualifications for each group.

First-time borrowers must have no more than 500 employees. Sole proprietors, eligible self-employed workers, and independent contractors are all eligible, as are accommodation and food service businesses with fewer than 300 employees per individual location. Loans will also be available for not-for-profit organizations, including churches.

Borrowers who previously received a PPP loan must have no more than 300 employees. They must have expended all of their original loan, or plan to do so.

All borrowers must show that they have experienced a year-over-year gross revenue loss of at least 25 percent in at least one of the first three quarters of 2020. This requirement is considerably more stringent than the first round of PPP, which simply required borrowers to attest that they were facing economic uncertainty due to the pandemic.

Borrowers in bankruptcy are also eligible to apply for a loan. Business owners who returned some or all of their previous PPP loan may reapply for the maximum amount loaned to them.

Who is ineligible

In addition to companies that fall outside of the parameters above, a business will not qualify for a loan if it is publicly traded. This stipulation addresses criticism that was lobbed at the first round of PPP after several franchises and other large businesses received funding.

The legislation also specifically excludes businesses with strong ties to China or the Special Administrative Region of Hong Kong. Companies that were created in or organized under the laws of China or Hong Kong, have “significant operations” there, or where entities from China or Hong Kong hold at least 20 percent interest in the company are ineligible. Corporations that have a Chinese citizen on their board of directors are also ineligible.

Nonprofit destination marketing organizations, such as chambers of commerce and visitors’ bureaus, may receive PPP loans. However, those that received more than 15 percent of their funds from lobbying in the past tax year, spend more than 15 percent of their activities on lobbying, or expended more than $1 million on lobbying are not eligible.

Businesses receiving funds through the $15 billion grant aimed at theaters, performing arts venues, and cultural institutions may not receive PPP loans. While borrowers who received PPP funds within the past 90 days are eligible, the combined sum they receive cannot exceed $10 million.

Funding levels

Borrowers can receive loans of up to $2 million, a significant reduction from the $10 million cap set in the first round of PPP. Loans are designed to cover 2.5 months of payroll, though this threshold is extended to 3.5 months for restaurants, food service businesses, and hotels.

Borrowers can choose the time period in which to spend their funds, and can expend the money in as little as eight weeks. All funds must be spent within 24 weeks.

Use of funds

In addition to payroll, PPP loans can be used to cover a variety of other expenses including rent, utilities, and operating expenses. The legislation also extends the eligible costs to purchases such as personal protective equipment, accounting software, and items that were deemed essential to operations at the time of purchase.


At least 60 percent of a PPP loan must be spent on payroll in order to be forgiven. The legislation also introduces a simplified forgiveness process for loans of $150,000 or less, similar to a process currently only available for loans of $50,000 or less.

Tax considerations

Refuting a previous declaration from the Treasury Department and Internal Revenue Service, both original and “second draw” PPP loans won’t be taxable. Grants made through EIDL will also not be taxable.

In addition, the legislation scraps a rule deducting the sum of an EIDL grant from the amount of a PPP loan that can be forgiven if a borrower receives assistance from both programs.

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