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The Economic Aid Act Restarts PPP Loans and Provides Nonprofits an Opportunity for a Second Forgivable PPP Loan
On December 27, 2020, the government enacted the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) to provide businesses continued relief caused by the impacts of COVID-19. The Economic Aid Act restarts the Paycheck Protection Program (PPP) by providing an additional $284 billion in forgivable loans to small businesses through March 31, 2021. Organizations that did not obtain a PPP loan in 2020 may apply for this new round of PPP loans. Additionally, organizations that did obtain a PPP loan in 2020 may now obtain a second PPP loan, subject to certain conditions. This bulletin sets forth the pertinent information nonprofits need to know about the new round of PPP loans.
Who is Eligible for a First Draw PPP Loan? If an organization did not receive a PPP loan in 2020, and was in existence as of February 15, 2020, it may now apply for a PPP loan if it has 500 or fewer employees. The maximum loan amount for a first draw PPP loan remains at $10 million. If an organization received a PPP loan in 2020, but did not receive loan forgiveness by December 27, 2020: (i) it may reapply for a first draw PPP loan if it returned some or all of its original PPP loan; or (ii) if the organization did not accept the full amount of its original approved PPP loan, it may request an increase in the amount of the first PPP loan up to the amount previously approved.
Who is Eligible for a Second Draw PPP Loan? The Economic Aid Act makes additional funding available to organizations that previously received a PPP loan. Organizations may take up to $2 million for a second draw PPP loan. An organization is eligible for a second draw PPP loan if it demonstrates that it:
- Previously received a PPP loan and used, or will use, the full amount for authorized uses before the expected date of disbursement of the second draw PPP loan;
- Has 300 or less employees; and
- Suffered at least a 25% reduction in gross receipts (revenue) in any 2020 quarter compared to its corresponding 2019 quarter, or in 2020 as a whole compared to 2019 as a whole.
How Much Can Nonprofits Borrow? Organizations may borrow up to 2.5 times their average monthly payroll. Borrowers may calculate their average monthly payroll from either the calendar year 2019 or the calendar year 2020, and must exclude costs over $100,000 on an annualized basis for any individual employee. First draw PPP loans can be for up to $10 million while second draw PPP loans max out at $2 million.
How Can Nonprofits Obtain Forgiveness of PPP Loans? Organizations that obtain first draw or second draw PPP loans must ensure they use the funds for eligible costs, and maintain their employee and compensation levels, in order to qualify to have their PPP loan forgiven. Loans will qualify for full forgiveness if, during an 8 to 24 week covered period as established by the organization, organizations use the funds for any of the following purposes:
- Mortgage interest;
- Covered worker protection and facility modification expenses, including personal protective equipment, and costs associated with sanitation measures and social distancing protocols to comply with federal, state, or local COVID-19 health and safety guidelines in effect after March 1, 2020;
- Expenses for property damage caused by looting or vandalism during public disturbances that occurred in 2020 that were not otherwise covered by insurance or other compensation;
- Expenses to suppliers that are essential at the time of purchase to the organization’s current operations; or
- Covered operating costs for software and cloud computing services that facilitate business operations, including processing payments, tracking payroll expenses, human resources, accounting, and tracking of records.
In order to be eligible for full loan forgiveness, borrowers must use at least 60% of the PPP loan proceeds for payroll costs during their 8 to 24 week covered period.
The Small Business Association (SBA) will soon create a simplified one-page PPP loan forgiveness certification form for first draw or second draw PPP loans under $150,000. Nonprofits taking loans at or less than this amount should still maintain written proof that they appropriately used these funds and that they are eligible for loan forgiveness.
When Should Nonprofits Apply for PPP Loan? Nonprofits can apply for first draw or second draw PPP loans through March 31, 2021. Nonprofits that are eligible for a first draw or second draw PPP Loan should however apply for those loans as soon as possible as the $284 billion in funding will likely be exhausted before that date.
 The original PPP loans required borrowers to establish covered periods at either 8 or 24 weeks. The Economic Aid Act permits borrowers to establish their own covered period, as long as that period is sometime between 8 and 24 weeks.