Cleary and Start Small Think Big Explore PPP, EIDL, and Small Business Aid in Latest COVID-19 Legislation

On December 27, 2020, the President signed into law the new stimulus legislation.

The bill includes, among other relief, important updates to the Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) program that may be beneficial to small business owners. The bill opens doors for new financial relief programs, increased funding amounts and more favorable loan forgiveness rules. Information on the legislation is quickly evolving. Additional updates and guidance on this legislation, including from the U.S. Small Business Administration (SBA) and the Department of the Treasury, is expected. Please continue to check in with us in the coming days and weeks for the latest information.

Major provisions include:

• PPP Loan Applications Reopening. Roughly $284.5 billion of funds have been authorized for the PPP expansion. Qualifying small businesses as well as sole proprietors and self-employed individuals may apply for PPP loans once the SBA opens this next round of funding. In addition, eligible businesses with not more than 300 employees that already received a PPP loan in the first round may apply for a second PPP loan of up to $2 million (if they sustained a 25% decline in gross receipts in any 2020 quarter as compared with the same quarter in 2019). Applications for PPP loans are expected to open soon, subject to guidance from the Small Business Administration (SBA), and to remain open until March 31, 2021.

• Expansion Of Eligible Expenses And Availability Of Tax Deductions. PPP funds (including PPP funds that were issued in the first round) may be used for additional categories of non-payroll expenses and still be eligible for loan forgiveness. New eligible expenses include certain software or computing operations expenditures, supplier costs and costs of worker protections and facility modifications (including personal protective equipment) to comply with COVID-19 health and safety guidelines. Further, for taxable years ending after the date that the CARES Act was enacted, businesses are allowed to take tax deductions for otherwise deductible business expenses (including wages) that are paid with forgiven PPP loan proceeds.

• Simplified PPP Loan Forgiveness Process. Borrowers who received PPP loans of up to $150,000 will be eligible to use a simplified loan forgiveness application form, subject to forthcoming SBA guidance. Under the simplified process, a borrower will only be required to provide a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.

• No EIDL Advance Deduction From PPP Loan. PPP borrowers will not be required to deduct the amount of any advances received under the EIDL program from the amount of their PPP loan that is eligible for forgiveness. This rule applies retroactively to PPP loans that have already been issued and forgiven.

• EIDL And New Financial Support Programs. New financial assistance programs will be available to certain eligible businesses in industries hardest hit by COVID-19 regulations. These programs include a new, targeted EIDL program for qualifying businesses, as well as grant funding for qualifying movie theaters, museums, live performing arts organizations, and live venues.

Start Small Think Big is working in partnership with lawyers from Cleary Gottlieb to keep track of these ongoing developments. Please be on the lookout for additional information and resources about the new legislation in the weeks to come. Reach out to Start Small Think Big should you wish to schedule a consult with an attorney about your small business.

This information is current as of December 28, 2020, and should not be considered comprehensive. This is not a substitute for, and should not be relied upon as, legal or professional advice; we recommend that you consult professional advisors for guidance on your individual circumstances. Nothing contained herein creates an attorney-client relationship with Start Small or Cleary Gottlieb. This information should not be construed as an endorsement of any specific financial program.