The Small Business Administration's Paycheck Protection Program will get another $284 billion for first and second forgivable loans under an economic stimulus package that Congress passed late in the evening Dec. 21.
According to a section-by-section summary of the package from Republicans on the House Small Business Committee, in order to qualify for a PPP "second-draw" loan, businesses must be able to demonstrate a 25% drop in gross receipts in the first, second or third quarter of 2020 relative to the same quarter of 2019.
"In the PPP, if businesses are down 25% they’ll be able to get a second check," Treasury Secretary Steven Mnuchin said in a Dec. 21 interview on CNBC.
Companies can use the receipts from the fourth quarter of 2020 if they apply for a loan on or after Jan. 1, 2021, the GOP summary said.
The compromise measure, now contained within larger omnibus government appropriations language, was reached after months of negotiations between House and Senate leaders and the Treasury Department.
"We've said our job is not done until we get everybody back to work, and that's what this is about," Mnuchin said.
According to the Republican summary, second-draw borrowing cannot exceed $2 million, as opposed to the $10 million limit in the original PPP. It is limited to businesses with 300 employees or less — down from the 500-employee limit in the previous iteration of the program — and companies have to show that they have used or will use the entire amount of their first loan.
All borrowers could get loans of up to 2.5 times their average monthly payroll costs in the one year prior to the loan or the calendar year. The bill provides extra help for the hotel and food services industries, offering up to 3.5 times the amount of average monthly payroll costs.
The measure expands the list of eligible PPP expenses from payroll, overhead and mortgage interest to include certain operating expenses, property damage costs, supplier costs and worker protection costs incurred during a covered loan period.
The bill allows lenders to rely on any certification and documentation provided by a borrower for a first- or second-draw loan. No enforcement or penalties will be imposed on banks relating to loan origination or forgiveness if they acted in good faith and follow all other federal, state or local statutory and regulatory requirements, according to the summary.
It also changes the structure of the fees lenders can earn from processing PPP loans. For loans of up to $50,000, banks will get the lesser of 50% of the principal amount or $2,500. For loans between $50,000 and $350,000, banks will get a 5% fee, while loans of $350,000 and above will earn a 3% fee. Under the existing structure, banks get 5% of a loan up to $350,000, 3% of a loan between $350,000 and $2 million, and 1% of a loan of $2 million or more.
In a development long sought by many lawmakers and a broad range of banking groups and other stakeholders, the bill offers a simplified one-page application for forgiveness of loans of $150,000 or less. Borrowers must describe the number of employees they were able to retain as a result of their loan, provide the estimated amount of the loan spent on payroll costs and give the total loan amount.
Borrowers who spend their PPP money on covered expenses will be able to deduct those costs from their taxes. Previously, the Treasury Department prohibited those deductions, sparking a big controversy in the banking community.
The new round of funding will include $15 billion for PPP loans issued by community financial institutions like minority depository institutions, or MDIs, and community development financial institutions, or CDFIs, and $15 billion for PPP loans issued by certain small depository institutions.
According to the summary, 501(c)(6) nonprofit organizations will be eligible for PPP loans as long as they do not receive more than 15% of their receipts from lobbying, lobbying activities do not compromise more than 15% of their activities, lobbying costs do not exceed $1 million during the last tax year prior to Feb. 15, and the group has 300 or fewer employees. Professional sports leagues that promote or participate in a political campaign or other political activities are not eligible, the summary said.
Separate from the small businesses section of the bill, CDFIs and MDIs will receive $12 billion from the relief package, according to a summary provided by the office of Sen. Mark Warner, D-Va. The bill will also create a new Neighborhood Capital Investment program that will help low-income and minority communities withstand the economic hardships associated with the COVID-19 pandemic, according to that summary.
Elsewhere, the stimulus package limits the incoming Biden administration's ability to restart several emergency loan programs that the Treasury launched with the Federal Reserve this year. Those four programs are the Main Street loan program for small and mid-sized businesses, the Municipal Liquidity Facility for state and local governments, and two facilities that authorized the Fed to buy eligible corporate bonds.
Mnuchin had already moved to let those facilities expire for new loans after the end of the year, and lawmakers confirmed that timeline in the text of the bill.
The bill also specifies that the Treasury would not be able to use the money in its Exchange Stabilization Fund, which it used to backstop the Fed programs, to launch any facility "that is the same as any" of those four programs. That restriction does not apply to the Term Asset-Backed Securities Loan Facility.
Finally, the bill extends the temporary relief from troubled debt restructurings and adherence to the current expected credit loss standard to Jan. 1, 2022, from Dec. 31, 2020.