PPP Application Deadline Extended; Another Fund Offers Restaurant, Bar Grants

3/30/21

The newly passed PPP Extension Act of 2021 has given small businesses until May 31 to apply for a potentially forgivable Paycheck Protection Program low-interest loan.

This two-month extension of the program, which had been scheduled to end on March 31, continues to extend a lifeline to small businesses that have been hard hit by the COVID-19 pandemic. The measure also provides an extra 30 days after the deadline for the Small Business Administration to process applications received by May 31.

The extension follows passage of the $1.9 trillion American Rescue Plan, which was signed by President Biden on March 11. 

Among other things that were part of the rescue plan, $28.6 billion was set aside for grants to restaurants and bars affected by the pandemic, and an extra $7.25 billion was added to the PPP. So far, $950 billion has been appropriated for PPP loans.

New Fund Provides Grants For Restaurants And Bars

The new billions in grant money for restaurants and bars, called the Restaurant Revitalization Fund, aims to help the hard-hit food-services industry. Also eligible for these grants will be food trucks, stands and carts; airport restaurants; caterers; brewpubs; taprooms; tasting rooms; and other places where the primary purpose is serving food or drinks.

These grants, which do not have to be repaid and will be administered by the Small Business Administration, can be used for eligible expenses such as:

  • Payroll costs (except for employee compensation above $100,000 annually)
  • Mortgage principal and interest payments, or rent payments
  • Utilities
  • Supplies such as personal protective equipment
  • Expenses such as those for outdoor seating, equipment and fixtures
  • Operational expenses
  • Paid sick leave
  • Certain supplier costs.

Eligibility for the food-services grants will be based on the difference between a business’s 2020 gross revenue and their 2019 gross revenue. If the restaurant wasn’t in business in 2019, the SBA will look at costs incurred minus the gross receipts received. The money is targeted to independent restaurants and chains with less than 20 locations that are not publicly traded.

Of the $28.6 billion, $5 billion in grants will be targeted to eligible applicants with 2019 revenue of $500,000 or less. The rest of the money will be available for up to $10 million to entities with 20 locations or less, and it is limited to $5 million per individual location. 

Initial grants will go to applicants from businesses owned and operated or controlled by women, socially and economically disadvantaged individuals, or veterans.

The plan notes that the grant amounts “shall not be included in the gross income of the person that receives such amounts.” Eligible entities that don’t use all their funds or close before Dec. 31, 2021, will need to return money that wasn’t used for allowable expenses.

For more information about the Restaurant Revitalization Fund and how to apply for a grant, visit the SBA’s COVID-19 relief options web page. Specific information about the fund and how to apply has not yet been released, but it is expected in April. In preparation, the U.S. Chamber of Commerce has recommended that establishment owners should work with their accountants to prepare the paperwork showing 2020 revenue loss vs. 2019.

PPP Information

The PPP portion of the American Rescue Plan added some extra eligibility for not-for-profit organizations and internet-only publishers.

The Biden administration said it is encouraging PPP lenders to focus more on the smallest businesses affected by the COVID-19 pandemic. It notes that 98 percent of small businesses have fewer that 20 employees.

There had been a focused two-week period from late February to early March that prevented larger employees from applying for PPP loans during that time, but the government said applications submitted by bigger businesses prior to Feb. 24 would be processed and would not face any delays. Once the two-week period ended, larger businesses were again be eligible to apply for the loans. The program is now scheduled to end on May 31, and the SBA will continue to process completed applications through the end of June.

The administration also had announced some additional changes to the PPP process as part of the rescue plan:

  • Sole proprietors, independent contractors and the self-employed are eligible for more relief. These businesses include beauticians, independent retailers and home repair contractors. A new loan-funding calculation is being set up for this group. Also, $1 billion is being set aside for businesses in this category that are located in low- and moderate-income areas.
  • It is eliminating the restriction the prevents small business owners who are delinquent on their federal student loans from obtaining PPP loans.
  • It will ensure that non-citizen owners of small businesses who are lawful residents of the United States can use their Individual Taxpayer Identification Numbers to apply for the PPP relief. This includes Green Card holders and people here on a visa. Guidance will make clear that “otherwise eligible applicants cannot be denied access to the PPP because they use ITINs to pay their taxes.”
  • It eliminates a restriction that prevents small businesses owners with previous non-fraud convictions from obtaining PPP relief.

Under guidelines passed in early January 2021, small businesses interested applying for a potentially forgivable PPP have been able to apply for funds.

Options include first- and second-draw opportunities. First-draw loans can be for up to $10 million and are for businesses with 500 or fewer employees who meet guidelines but were unable to receive a loan before funding ran out during two earlier rounds in the first part of 2020.

Second-draw loans are for businesses that had previously received a PPP loan and have used – or will use – their full first loan by the time a requested second loan would be disbursed. Second-draw loans can be for up to $2 million for businesses with 300 or fewer employees.

For businesses applying for a PPP loan, experts are recommending that you consult with your accountant or tax professional to ensure you have all of the necessary documentation and meet the requirements.

Full guidance for first- and second-draw loans was released by the Small Business Administration on Jan. 6 in two interim final rules. Those documents are:

Here are some highlights and things to consider:

  • Businesses applying for first-draw loans should have tax information, payroll information and details about eligible expenses.
  • Those applying for second-draw loans will need to prove a revenue reduction of 25% or more in part or all of 2020 compared with part or all of 2019.
  • To qualify for full loan forgiveness, borrowers need to spend at least 60% of the loan proceeds on payroll over a period of at least 8 weeks but no longer than 24 weeks.
  • Other qualified forgiveness expenses include rent or mortgage payments; utilities; covered protective equipment for staff meant to comply with federal health and safety guidelines related to COVID-19; certain expenditures from vendors; covered operating costs such as cloud computing and software; and covered property damage costs related to disturbances that happened during 2020.
  • First-draw applicants must have 500 or fewer employees and have been in operation on Feb. 15, 2020. Eligible applicants include sole proprietors; eligible self-employed; independent contractors; non-profits, including churches; eligible food-service and accommodation businesses operations; Sec. 501 (c)(6) business leagues such as chambers of commerce and visitor bureaus; as well as some news organizations.
  • If PPP loan forgiveness is approved for funds spent on eligible expenses, the funds will not be taxable and deductions for the related expenses will be allowed on federal tax returns. This reverses a previous ruling denying those deductions. Individual states will decide if these deductions will be allowed on state tax returns.
  • There will be a simplified one-page forgiveness application process for loans of $150,000 or less.
  • PPP borrowers will not have to deduct any Economic Injury Disaster Loan advance funds from their PPP forgiveness amount.
  • Borrowers can receive a loan amount of up to 2.5 times their annual monthly payrolls costs, although some borrowers that have NAICS codes starting with 72 - typically restaurants and hotels - may be eligible for up to 3.5 times those costs. There is an annualized $100,000 cap per employee.

Additionally, the SBA notes that:

  • PPP loans have an interest rate of 1%.
  • Loans issued prior to June 5, 2020, have a maturity of two years. Loans issued after June 5, 2020, have a maturity of five years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (either 8 weeks or 24 weeks).
  • No collateral or personal guarantees are required.

The PPP program is overseen by the SBA and administered by SBA-approved financial institutions. Applications will be made directly through participating financial institutions and when they are eligible to do so, businesses will be able to apply for loan forgiveness through the institution that issued them the loan.

For information about loan forgiveness, including forms and instructions, you can visit the SBA at www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program/ppp-loan-forgiveness.

The SBA also has information available to help you:

Borrowers who had been approved for a PPP loan earlier in the year are now able to submit their application for loan forgiveness to their lender. Based on the borrower’s covered period following the PPP loan disbursement, the SBA states that:

“As long as a borrower submits its loan forgiveness application within 10 months of the completion of the Covered Period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.”

The SBA also says that borrowers can submit a loan forgiveness application at any time before the maturity date of the loan, but “if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred, and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.”

If you have any questions about your PPP loan and the forgiveness application, it is recommended that you contact your lender, as well as your accountant or attorney if you have been working with them. 

For additional resources about the Paycheck Protection Program, visit the SBA website at  www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources.

The information in this article is not a comprehensive list of all PPP loan eligibility requirements. For complete details it is recommended that businesses consult their accountant, lawyer or tax professional, or to refer to the full SBA guidances regarding first- and second-draw PPP loans. More details or updates will be added to this article as necessary.