Bipartisan Legislation for COVID Relief Package – Summary of Key Provisions
On December 21, 2020, a bipartisan, veto-proof majority in each house of Congress passed an omnibus Consolidated Appropriations Act for fiscal year 2021 (the “Act”), which included revisions and extensions of the the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that became law in late March in response to the economic impact of COVID. The Act, which President Trump has threatened to veto, contains key provisions addressing:
- Revisions and Improvement to the Paycheck Protection Program, including expanded categories for use of loan proceeds and loan forgiveness, simplified forgiveness applications for those with loans under $150 thousand, and new funding for initial PPP loans to businesses and second draw loans for a limited number of small businesses that can demonstrate significant loss of revenue during the first half of 2020.
- Grants for Shuttered Venue Operators, such as certain live venue operators, theatrical producers, live performing arts operators, museums, motion picture theater operators and talent representatives.
- Extension of Unemployment Insurance Benefits to self-employed and those with limited work histories, supplemental benefits for all individuals and extension of coverage to up to a total of 50 weeks (an increase from 39 weeks in the CARES Act).
- Clarification and amending of a number of tax issues (see separate client alert), including permission for PPP Borrowers to deduct expenses paid with forgiven loan proceeds.
Paycheck Protection Program
Businesses that have not yet taken a PPP loan are eligible to apply for a loan, largely under the rules that applied in the two earlier tranches of the PPP program.
Second Draw Loans
Under the Act, PPP loans will be made available to a limited number of businesses that previously received a PPP loan, as well as borrowers who have not previously received a PPP loan. In general, first-time borrowers must satisfy the existing requirements to receive a PPP loan. To qualify for a second PPP loan (which cannot exceed $2 million), a business must:
- Have, together with its affiliates, 300 or fewer employees.
- Have used or will use the full amount of its first PPP loan.
- Show decline in gross revenue of at least 25% in any 2020 quarter compared with the same quarter in 2019.
Borrowers that Repaid a Portion of Their PPP Loan
The Act also provides that borrowers who repaid all or a portion of their loan may apply for a new loan in an amount equal to the difference between the amount retained and the maximum amount of the loan. Borrowers who did not accept the full amount of their PPP loans may request a modification of their loan to the maximum amount permitted under the CARES Act (as amended).
Under the CARES Act, permissible expenses were limited to payroll, rent, mortgages, utilities and debt obligations. Under the Act, permissible expenses have been expanded to include
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
These expenses are both a permissible use of funds as well as eligible for forgiveness. For existing borrowers, these changes have been made retroactive to the original CARES Act for all loans that have not yet been forgiven – meaning that some borrowers might be eligible for increased forgiveness. Note, however, that the Act reaffirms the SBA regulations that provide that payroll expenses must comprise at least 60% of the forgiven amount of loans.
The Act also amends the CARES Act to provide that group life, disability, vision and dental benefits are included within payroll costs, and are eligible for forgiveness for loans made prior to the Act.
The “covered period” during which the loan can be used – and during which forgiveness is calculated – is a period between eight and 24 weeks from the date of origination of the loan. Despite discussion of extending the period, no such change was included in the legislation.
Streamlined Loan Forgiveness
The Act creates a streamlined forgiveness process for loans under $150,000; borrowers need only submit a form (to be “no more than one page in length”) that includes very limited information about the use of funds.
The Act also provides that expenses paid with forgiven PPP loans are tax-deductible, superseding IRS guidance that such expenses would not be deductible by taxpayers. The Act also reaffirms that forgiven PPP loans do not have to be taken into income of borrowers.
Debtors in Bankruptcy
The Act provides that debtors in a Chapter 11, 12 or 13 case are eligible for PPP loans and the loans will be treated as administrative expenses.
Other Small Business Support
Eligible Performing Entities and Motion Picture Theater Operators
Live venue operators, theatrical producers, live performing arts operators, museums, motion picture theater operators and talent representatives are eligible to receive grants of up to $10 million.
Each form of eligible business has specific qualifications, with a common requirement being that the business must be open (or intend to reopen) and must show a decline in gross revenue of at least 25% in any 2020 quarter compared with the same quarter in 2019.