Following the enactment of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act in December 2020, the Biden administration announced several changes to the Paycheck Protection Program on February 22, 2021 aimed at providing greater access to funds for underserved businesses and communities. This LawFlash discusses these recent changes, highlighting key provisions and guidance for businesses seeking to participate in the program before it officially expires on March 31, 2021 (pending any additional legislation from Congress).
On February 22, 2021, the Biden administration released a fact sheet that instructs the Small Business Administration (SBA) to increase lending to small businesses in need through the Paycheck Protection Program (PPP) with the goal of changing the PPP to further promote equitable access to relief. These announcements come roughly a month before the PPP is set to expire on March 31, 2021 and follow the recent extension and expansion of the PPP as a result of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (EAA) that was part of the Consolidated Appropriations Act of 2021 enacted on December 27, 2021. Our recent LawFlash discusses the extension and expansion of the PPP, and provides links to important SBA guidance.
From a policy perspective, many of these recent changes to the PPP loan program reflect the Biden administration’s early focus on equity-based decision-making across various federal government agencies, and it is a visible sign that the administration is putting real money behind this platform from the start.
BREAKDOWN OF BIDEN CHANGES
On Monday, February 22, 2021 President Joseph Biden announced several changes to the SBA's coronavirus relief programs to ensure equitable access to funding. On March 3, 2021, the SBA released an interim final rule discussing these changes and how they impact PPP loan calculations and eligibility. The SBA also released an updated FAQ sheet. A summary of the Biden changes is discussed below:
- 14-Day Exclusive Application Window: Beginning February 24, 2021, the SBA established an exclusive PPP loan application period, per the direction of President Biden, for businesses and nonprofits with fewer than 20 employees. The exclusive application period ended Tuesday, March 9, 2021.
- The aim was to provide lenders and community partners more time to work with the smallest businesses to submit their applications.
- Following the application period, all PPP-eligible businesses still have plenty of time to apply for and receive support before the program expires on March 31, 2021. As of the SBA’s latest report, there was still roughly $120 billion remaining in funding for PPP from the original $285 billion in funds provided in the EAA.
- $1 Billion Set Aside for Businesses Without Employees Located in Low- and Moderate-Income (LMI) Areas: These businesses without employees – which include sole proprietors, independent contractors, and self-employed individuals such as home repair contractors, beauticians, and small independent retailers – are 70% owned by women and people of color.
- Revised PPP Funding Formula: The SBA will allow sole proprietors, independent contractors, and self-employed individuals to receive more financial support by adjusting the loan calculation formula for these applicants such that they can now use gross income, rather than net profit, from IRS Form Schedule C as a proxy for payroll.
- The SBA released updated application forms on March 3, 2021 for this category of applicants seeking First-Draw and Second-Draw loans and intending to use gross income to calculate their loan request amounts.
- Removal of Several Restrictions: Prior to the Biden updates, several categories of applicants were unable to receive PPP funds due to certain restrictions based on an applicant’s criminal record and borrower history. While some restrictions remain, the following changes have been made:
- Elimination of an exclusionary restriction on PPP access for small business owners with prior non-fraud felony convictions.
- This will make eligible those borrowers with at least 20% ownership by an individual who has non-fraud-related felonies in the past year.
- Elimination of PPP access restrictions on small business owners who have struggled to make student loan payments by eliminating student loan debt delinquency as a disqualifier to participating in the PPP.
- This will make eligible those borrowers with at least 20% ownership by an individual who is currently delinquent or has defaulted within the last seven years on a federal student loan.
- Clarification of Access to the PPP for Lawful US Residents: The Biden administration has made it clear that the SBA must provide access to PPP loans for non-citizen small business owners who are lawful US residents.
In addition to implementing these recent directives from the Biden administration, the SBA also released updated applications for all applicants (different than Schedule C filers) for First-Draw and Second-Draw loans.
NAVIGATING THE NEXT.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Andrew T. Budreika
Andrew P. Rocks
Benjamin W. Stango
Kristen V. Campana
Matthew E. Schernecke
Melissa M. Meyer
Sandra J. Vrejan
Ian M. Wenniger
Elizabeth Khoury Ali
David V. Chang
Stephen E. Ruscus
Shah M. Nizami
Sheila A. Armstrong