Market Perspective

6 Ways the Paycheck Protection Program is Different This Time

January 19, 2021
The C2FO Team

The third round of PPP has new measures to benefit women- and minority-owned companies, and small businesses in need of funding. 

After a nearly six-month absence, the US federal government’s Paycheck Protection Program (PPP) is finally back.

Much has happened since the first $350 billion round of funding under PPP was passed by Congress in March 2020 as part of the CARES Act. Since that time, tens of thousands of US companies, many of them small businesses, have closed permanently because of the COVID-19 pandemic. Across America, the issues of racial bias and economic inequality have come to the forefront since the deaths of George Floyd and others as the result of police violence. 

Meanwhile, the first two rounds of PPP have been criticized for incidents of fraud and for Small Business Administration-approved lenders writing PPP loans to large companies and organizations that are less vulnerable to the pandemic. 

Fortunately, the new round of $284 billion in PPP funding, approved Dec. 27 as part of Congress’ new stimulus package and available for borrowers until March 31, comes with a few new guidelines.

Here are six ways this version of PPP is different and how those changes may affect your small business:

1. Women- and minority-owned businesses are first in line

The economic crisis brought on by COVID-19 devastated women- and minority-owned businesses in 2020. A study by the University of California Santa Cruz reports that 41% of Black-owned businesses and 25% of women-owned businesses in the US closed between February and April of last year, compared to just 19% for White-owned businesses.

With that disparity in mind, only community financial institutions were allowed to make first-time PPP loans on Jan. 11, and second-draw loans starting Jan. 13. By emphasizing smaller lenders, the SBA hopes to distribute more money to women- and minority-owned small businesses that did not have the same access to the first two rounds of PPP money last year. 

On Jan. 19, all participating lenders were allowed to make PPP loans, but this change in approach provided underserved small businesses with a head start. 

2. Limits on what businesses can borrow

To be eligible for this round of PPP funding, applicants must show a quarterly loss of 25% or more for any quarter of 2020, when measured against the same time period in 2019. Also, borrowers this time around must have no more than 300 employees at one location — down from the 500-employee limit for borrowers of the previous rounds of PPP. Companies that meet these criteria and borrowed PPP money last year are eligible for a second-draw loan of as much as $2 million.

Publicly-traded companies and companies that went into business after Feb. 15, 2020 are excluded from PPP borrowing under the new guidelines.

3. An easier path for forgiveness

Loan forgiveness has always been a perk of PPP lending. This round, however, makes forgiveness a bit easier.

For example, if you need forgiveness on a PPP loan that’s less than $150,000, you must only complete a one-page form. The number of forgivable business expenses under PPP has been expanded. In addition to payroll, rent, utilities and mortgage interest, companies can also apply PPP funding to (and still be eligible for loan forgiveness on) expenses like personal protective equipment, supplier costs, computer software, and property damage from public disturbance in 2020.   

4. New fraud measures 

Some of the more than $525 billion in PPP issued last year was obtained fraudulently. In other instances, the money went to borrowers who weren’t exactly on the verge of shutting down.

To ensure this round of PPP funding gets into the right hands, the program now includes more restrictions on who can borrow. Businesses of which members of Congress or the executive branch (or their spouses) own a 20% or greater stake cannot receive a PPP loan. The same goes for companies that already received a CARES Act grant for shuttered operations, or any business that has already permanently closed. 

The SBA has also introduced new safeguards against fraudulent activity, including automated data verification and identity checks. 

5. Restaurants and hospitality businesses can get bigger loans

The restaurant and hospitality industries continue to suffer from government-imposed restrictions and shifting consumer habits during the ongoing pandemic. 

Therefore, restaurants and other hospitality businesses with an NAISC code 72 are allowed to get a loan of up to 3.5 times their average monthly payroll expenses, as opposed to 2.5 times for other businesses.

6. Low to moderate income areas should benefit 

If your company is located in an area designated by the US census as low to moderate income (basically, a location with a poverty rate of 20% or higher), then you are eligible for special funding under PPP. The program has set aside $15 billion for initial loans and $25 billion for second-draw loans for small businesses in those areas that employ as many as 10 workers. 

Additional PPP money has been earmarked for small credit institutions, community development institutions, SBA microloan programs and other initiatives intended to benefit underserved businesses and communities.

For more information about the rules and benefits of PPP, read the newly updated SBA guidance on the program. 

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