Will you be getting another PPP Loan in 2021?  Well, a new COVID-19 relief bill was signed into law on December 27, 2020. With this bill, Congress has allocated $284 billion to new PPP loans and, for the first time, allows for second draw loans to current PPP borrowers who qualify.

The new PPP application has not yet been released and the program has not yet reopened, but we want to pass along the details that we have at this point.

Vast Bank will continue to provide updates as they become available and notify customers as soon as the new PPP Loan application is published, and the program is open for applications.

A Two-Phased Approach For PPP Loans

To best serve loyal customers of Vast Bank, we will accept applications in two phases. Ultimately, we anticipate being able to service all applications.

Phase 1: Open to Vast Bank customers only for the first 5 business days after the program opens.

Phase 2: Open to non-customers, under the following criteria:

Applicant must have submitted their PPP Forgiveness Application for Round 1 in order to be eligible for Round 2. It is not required that the loan be forgiven by SBA, but the application and supporting documentation must be submitted. You can find instructions for completing your PPP Forgiveness application here. 

Note that the new legislation provides for a new simplified Forgiveness Application for Round 1 PPP loans of $150,000 or less. This application has not yet been released, but it will be distributed once available.

Who is eligible to apply for a second PPP Loan draw?

An applicant is eligible for a Second Draw PPP Loan if it is a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization that was eligible in Round 1, veterans’ organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, or an eligible nonprofit news organization (subject to additional provisions).

Additional requirements:

• Applicant has 300 or fewer employees
• For industries with NAICS codes beginning with a 72 (primarily hotels and restaurants) that have more than one physical location and employ not more than 300 employees per physical location are eligible.
• Applicant has used or will use the full amount of their first PPP loan
• Applicant can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019, or 2020 annual revenues show a 25% decline compared to 2019 annual revenues.
• Your PPP Round 1 loan is not included in revenues for the purpose of this calculation.
• If your business was not in operation for the entirety of 2019 or is a seasonal operation, please review pages 21-22 of SBA guidance here for further instructions.
• Applicant is not a public company
• Applicant must certify that economic uncertainty makes the loan request necessary to support ongoing operations

Loan Terms

For second draw PPP loans, the costs eligible for loan forgiveness include payroll, rent, mortgage interest, utilities as well as the following non-payroll expenses:

• Covered operations expenditures, including payment for any software, cloud computing, and other human resources and accounting needs
• Covered supplier costs related to contracts, purchase orders or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made
• Covered worker protection costs such as personal protective equipment and adaptive investments that help businesses comply with federal and local health and safety guidelines
• Covered property damage costs, related to public disturbances that occurred during 2020 that are not covered by insurance

The requirement to spend at least 60% of PPP loan proceeds on payroll expenses remains in place.

The loan amount is determined by:

• The average monthly payroll costs for the 12-month period before the date the loan is made, or 2019 average monthly costs, multiplied by 2.5
• Accommodation and food services operations (those with NAICS codes starting with 72) can use 3.5 as the multiplier
• Loans are capped at $2,000,000

Other conditions:

• The maturity is five years, and the interest rate is 1.00%.
• No collateral or personal guarantees are required.

Changes to Forgiveness

The COVID-19 relief bill also changes aspects of the PPP forgiveness process:

• Simplified the forgiveness application process for loans of $150,000 or less. Borrowers should be aware, that while the forgiveness application is simplified, all of the rules still apply. Application forthcoming.
• Borrowers are no longer limited to a choice of an 8 or 24 week covered period but may select any length of time between 8 and 24 weeks after the origination of the loan.
• Reduced the document retention period from 6 years to 4 years for employment related records and 3 years for all other records.
• Repealed the requirement that PPP borrowers deduct the EIDL advance from their PPP forgiveness amount.

Tax Implications

The bill also clarifies the tax treatment of expenses funded with PPP loans and overrides previous determinations by the Treasury Department and the IRS. Specifically, the bill states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied by reason of the exclusion from gross income provided.” PPP loan forgiveness is also excluded from taxable income of the borrower. These provisions apply to loans under the original PPP program and subsequent PPP loans.

Next Steps

Vast Bank has prepared a portal to receive second draw PPP loan applications. Once the SBA clarifies the application format and documentation requirements, we will publish the link on our website and share it with customers by email.

If you are interested in applying, we recommend you begin compiling documentation to support payroll expenses and documentation to support 25% gross revenue decline.

The SBA has not published when it will begin processing applications; however, the bill has specified March 31, 2021 as the end date of this PPP program.

The full interim rule, which details the program guidelines, can be found using this link.