Important PPP update for 2021
On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process. Also there is provision for “second draw” PPP loans for businesses that received PPP funding in 2020.
Please note, though the PPP application deadline is being extended, you only have until May 31, 2021 to get your application submitted to the SBA. After that, the SBA will only process existing applications that have already been submitted, until the PPP deadline of June 30, 2021.
In this 2-minute read:
- What is the size cutoff for businesses applying for PPP loans?
- Can I get a PPP loan if I have more than 500 employees?
- How does the SBA’s “alternative size standard” apply for PPP loans?
- What are the size restrictions for PPP second draw loans for 2021?
In the wake of the first round of Paycheck Protection Program (PPP) loans, you may have seen several stories about larger, multi-million dollar businesses returning their loans.
With how quickly the initial program ran out of funding, and how many businesses still need help despite the PPP coffers being refilled and depleted several times, the backlash comes as no surprise.
Now that program has received second and third rounds of funding, are there limits to the size of businesses who can still get PPP loans?
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Can “larger” small businesses still apply for PPP loans in 2021?
The Paycheck Protection Program was created to help small businesses survive the economic shock brought on by the coronavirus pandemic. And, despite a growing social “shaming” trend, many “larger” small businesses need relief, too.
So, if you own a business on the “larger” side of the small business spectrum, can you still apply for a PPP loan?
The short answer is, “yes.” As long as your business has 500 or fewer employees, and also meets all other necessary requirements to apply for a PPP loan, you can still apply. (See below for exceptions for some “small business concerns” with more than 500 employees.)
For 2021, there’s a new second-draw PPP loan available for businesses who received PPP funding in 2020. The size restriction for second draw loans is 300 employees or fewer. Read more about second draw PPP loans.
Learn more: Who can apply for a PPP loan? Is my business eligible?
How does the SBA’s “alternative size standard” apply to PPP loan eligibility?
In addition, in Treasury Department issued a recent update related to PPP loan eligibility, saying that that a business can still qualify for a loan even if it has more than 500 employees if it meets the SBA’s employee-based or revenue-based size standard corresponding to its primary industry. Please visit www.sba.gov/size for the industry size standards.
Under the SBA’s “alternative size” standard, a business can qualify for a PPP loan as a small business if as of March 27, 2020, it (1) had a maximum tangible net worth of not more than $15 million, and (2) had an average net income after Federal income taxes (excluding any carry-over losses) of not more than $5 million for the last two fiscal years before the date of the application.
A business that qualifies as a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632, may truthfully attest to its eligibility for PPP loans on the Borrower Application Form, unless otherwise ineligible.
However, regardless of the size of your business, before you apply for a PPP loan you should be prepared to show your business truly needed the funds.
Be prepared to demonstrate a “need” for your PPP loan
The Paycheck Protection Program was intentionally rolled out without overly prescriptive directives as to which types of businesses should and should not apply.
As a result, businesses weren’t really required to demonstrate “proof of need” for PPP funds in order to apply. The top priority was to get funds to businesses as quickly as possible. But that doesn’t mean the PPP was meant to be a free-for-all for any business.
In fact, the Treasury Department issued guidance on Thursday (April 23, 2020) directing publicly traded companies to return Paycheck Protection Program (PPP) loans by May 7 if they couldn’t prove they were eligible for a loan.
Businesses of all sizes should take this guidance as a sign to be prepared to show a concrete need for any PPP funds they’ve received.
Learn more: How to get your PPP loan forgiven
Put simply, if your business doesn’t absolutely need a PPP loan, you probably shouldn’t apply for one.
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