Best Practices: New Bill Delivers Another Round of PPP Loans and Payment Relief for Small Businesses

On December 27, 2020, a new relief bill intended to provide economic support to businesses was passed into law.  This bill, entitled the Consolidated Appropriations Act 2021, establishes various programs to provide much-needed funding to individuals and businesses as the COVID-19 pandemic continues. Although the corresponding regulations have yet to be released, there are many exciting aspects of this new legislation to begin considering. 

Of primary importance to lenders offering financing under any of the Small Business Administration (SBA) programs, is the subpart of the bill known as the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), which allocates over $325 billion to small businesses, including $284 billion for additional Paycheck Protection Program (PPP) loans. These funds can be used not only by small businesses who have yet to receive a PPP loan but also by some small businesses who may be eligible to receive a second PPP loan. 

In addition to allocating funds, the Economic Aid Act also significantly revised various aspects of PPP loans. For example:  

• Adds four new types of eligible forgivable expenses, including PPE expenses associated with outdoor dining and supplier costs,
• Creates the option for new covered periods,
• Simplifies the loan forgiveness process for loans under $150,000.00,
• Increases PPP eligibility for hospitals, local newspapers and TV and radio broadcasters, housing cooperatives, and 501(c)(6) nonprofits,
• Allows for small businesses in the restaurant and hospitality industries to receive larger awards of 3.5 times average total monthly payroll (rather than 2.5 times),
• Repeals the requirement of deducting an EIDL grant from the PPP forgiveness amount, and
• Allows for tax deductibility of PPP expenditures.

The Economic Aid Act also includes economic disaster grants and debt relief provisions. $3.5 billion is allocated for debt relief payments of principal and interest (P&I) on small business loans via Section 325, which amends the regulations and rules surrounding Section 1112 payments authorized by the CARES Act.  Subject to other provisions, “the Administrator shall pay the principal, interest and any associated fees that are owed on a covered loan in a regular servicing status, without regard to the date on which the covered loan is fully disbursed, and subject to availability of funds…” [Emphasis added].  The hope is that funds will be available to cover 6 months of P&I, subject to a $9,000 “forgiveness” cap, and furnish additional assistance to the underserved and sectors of the economy which have been particularly hard hit by the pandemic.  

The SBA has until January 6, 2021 to begin implementing regulations for many aspects of the Economic Aid Act. Until regulations are promulgated, however, much remains uncertain. Lenders will recall how the 4% interest rate permitted by the CARES Act became 1% after the regulations were enacted.  Accordingly, as with the previous rounds of PPP loans, lenders should keep an eye out for the release of the IFRs, keep abreast of NAGGL updates, and monitor guidance provided by SBA and Treasury.   

For more information on the latest legislation and SBA lending, contact the attorneys at Starfield & Smith, PC at 215.542.7070.