Steimle Birschbach, LLC

Paycheck Protection Program – Round 2 by Andrew J. Steimle, Esq.

On January 11, 2021, the United States Small Business Administration (“SBA”) reopened the Paycheck Protection Program (“PPP”) for first draw PPP loans.  On January 13, 2021, the SBA began accepting second draw (“Round 2”) applications for recipients that already received a PPP loan in 2020.  The program is expected to remain open until March 31, 2021 (or if the PPP runs out of money, potentially sooner).  Whether Congress will pass another round, add additional funding, or extend the program is unknown.  As such, clients are advised to promptly apply for Round 2, provided they qualify.

Qualifications are slightly different in this Round 2.  Generally speaking, borrowers are eligible if they satisfy the existing statutory and regulatory definition of a “small business concern,” an “alternative size standard,” or the Borrower has no more than 300 employees.  In addition, the borrower must demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.  For example, if a borrower’s 2020 2nd quarter gross revenues were $75,000, and in the same quarter in 2019 has gross revenues of $100,000, that is a 25% reduction rendering the borrow eligible for Round 2.  Annual revenue is not taken into consideration (i.e., even if 2020 was better than 2019 as a whole, so long as one of the quarters saw a 25% reduction from 2019’s comparable quarter, the borrower is eligible).

For the vast majority of borrowers, the maximum loan remains the same as in the first round – specifically, 2.5 times the monthly payroll costs up to $2.0 million.  However, for borrowers with a NAICS code of 72 (Accommodation and Food Services sector) the maximum loan is 3.5 times the monthly payroll costs, also capped at $2.0 million.

In addition, the forgiveness process has also been simplified for smaller loans.   Applications 3508EZ, and 3508S, are shortened versions of the application.  Forgiveness application 3508EZ is used for self-employed individuals, independent contractors, or sole proprietors who had no employees and did not include any employee income in the computation of the loan amount.  Application 3508S is used where the amount borrowed is $150,000 or less.  Other requirements exist for forgiveness.

Special note:  If a company has an outstanding PPP loan and is looking to sell its assets or majority control of its stock, special action must be taken prior to closing to comply with applicable PPP regulations.  Failure to comply may result in none of the PPP loan being forgiven.

Contact the Business Law team at Steimle Birschbach for assistance relating to PPP loans or any matters relating to the sale or acquisition of a company or product line.