What’s new for PPP 2021?

• The SBA is responding to criticism that larger borrowers who used bigger banks had an advantage over smaller borrowers using less established banks
• Community financial institutions tasked with serving low-income, minority-owned and other disadvantaged businesses will have first dibs on funds, with larger banks held back until a later (yet undetermined) date

The Paycheck Protection Program under the CARES act issued $522 billion in forgivable loans in 2020 to America’s small businesses, but critics say more than half of the money went to larger firms. (The applicable definition of “small business” where the PPP loan program is concerned is a business with under 500 employees.) 

The Trump administration pointed out that 87% of the loans were for under $150,000 (which means the program reached a huge portion of truly small businesses, since the maximum allowed loan amount is based on 2.5X a business’s payroll expenses).

However, as the Washington Post points out, around 600 companies borrowed the maximum allowable amount ($10 million each), and over half the total funding went to larger businesses. Specifically the top 5% of loans account for more than half of all loan value.

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The SBA clearly points out their successes in reaching low-income, underserved, and rural small businesses in their 2020 PPP loan programs, in their document on minority, underserved, veteran, and women-owned businesses:

“More than 87 percent of loans have been for $150,000 or less, with an average loan size of $101,000 – demonstrating the accessibility of the PPP to even the smallest businesses. PPP loans have been broadly distributed across diverse areas of the economy, with 27 percent of the funds going to low- and moderate-income communities, which is in proportion to their percentage of the population [emphasis added]. More than 70 percent of PPP loans have been made to businesses with fewer than 10 employees. Over $80 billion, or 15 percent of the total

PPP loan amount, has been disbursed to small businesses in rural communities. Small businesses in Historically Underutilized Business Zones (HUBZones) have received more than $130 billion in PPP funding, accounting for more than 25 percent of all PPP loan dollars.”

Smaller lenders will get first access to PPP funds in an effort to better serve low-income communities and lenders, as well as minority, veteran, and women-owned businesses

However, backlash from the public who saw much of the initial PPP loan funding being allocated to successful, publicly traded businesses, and/or the perceived inability of many smaller lenders and underserved communities to access PPP funds before the money ran out (several times during 2020), has led the SBA to issue new PPP rules for 2021 in an effort to better serve low-income communities and lenders, as well as minority, veteran, and women-owned businesses. Underserved communities, lenders, and businesses will get the first chance for PPP loans.

In an effort to create greater parity and better serve America’s women-, minority-, and veteran-owned businesses (and the lenders that they use), the SBA is giving exclusive access to community financial institutions for “at least” the first two days after the PPP application portal opens on January 11, 2021.

This will hopefully allow smaller community lenders and businesses to get better access to these emergency funds.

The PPP has allocated specific portions of 2021 PPP funding to serve smaller businesses and low-income neighborhoods

At least $15 billion is being set aside for eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods.

Specifically, according to the SBA’s document, the bill dedicates:

• $15 billion across first and second draw PPP loans for lending by community financial institutions; 
• $15 billion across first and second draw PPP loans for lending by Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion;
• $35 billion for new first draw PPP borrowers; and
• $15 billion and $25 billion for first draw and second draw PPP loans, respectively, for borrowers with a maximum of 10 employees or for loans less than $250,000 to borrowers in low-or moderate-income neighborhoods. SBA has determined that at least 25 percent of each of those set-asides will go to each one of the groups: loans to borrowers with a maximum of 10 employees and loans less than $250,000 to borrowers in low-or moderate-income neighborhoods

Read the full details here.

Go deeper: learn about the PPP loan for ITIN holders.

Second draw PPP loans include $25B for lower income areas

For 2021, the SBA is allowing some first-time PPP recipients to get a second PPP loan, called a “second draw” loan. The restrictions are tighter (less than 300 employees) and a business must demonstrate appropriate expenditure of their first PPP funding as well as a 25% or greater reduction in revenue for 2020 compared to 2019. 

As noted above, $25 billion of this funding is also set aside for eligible borrowers with a max of 10 employees or loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods.

Click for more information on second-draw PPP loans.

Heavily hit accommodation and food services businesses can borrow more PPP funds in the second draw

For most PPP borrowers in 2021, the maximum PPP loan amount was calculated as 2.5x their average monthly payroll costs. However, for borrowers in the struggling accommodation and food services sector (businesses that are listed as NAICS codes starting with 72, full list here), the maximum loan amount is increased to 3.5x average monthly 2019 or 2020 payroll, when they apply for second draw PPP loans.

The SBA will “strongly encourage” minority-, women-, veteran-, and military-owned lenders to apply to become PPP lenders

According to the SBA, they will “continue to strongly encourage . . . minority-, women-, veteran-, and military-owned lenders to apply to become PPP lenders. SBA will give full and prompt consideration to these applications to become PPP lenders consistent with program guidelines, including in cases where the lender does not meet all of the requirements listed on the updated SBA Form 3507.”

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