A comprehensive $900 Billion, nearly 5,600-page bill called the “Consolidated Appropriations Act of 2021,” was passed last night which included provisions related to the Paycheck Protection Program and other items of interest to the banking industry. This lengthy e-publication provides a detailed overview of these changes.  
 
The “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act” contains several changes of importance to bankers, most notably related to the Paycheck Protection Program. The new law sets aside $284 billion for PPP both for new borrowers and for those borrowers meeting the criteria for a “second draw.” Except as otherwise provided, the new law requires SBA to promulgate rules within 10 days of enactment of this law to implement this section. Clearly the SBA staff will not have an enjoyable holiday season! 

Highlights 

  • $284 billion in new funds for the Paycheck Protection Program, including a second draw option for prior PPP borrowers and $15 billion set aside specifically for first and second draws issued by community financial institutions, including community development financial institutions and minority depository institutions 
  • $12 billion in targeted emergency investments to help low-income and minority communities, including $9 billion to be used by Treasury to create an Emergency Capital Investment Program to make direct and indirect capital investments in low- and moderate income financial institutions 
  • A hold-harmless safe harbor for PPP lenders from enforcement and penalties to include all certifications made by borrowers or applicants connected to initial or second-draw PPP loans 
  • A simplified PPP forgiveness process allowing PPP loans of $150,000 or less to be forgiven after the borrower completes a one-page attestation 
  • Repeal of a CARES Act provision that required PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount 
  • Enhancements of existing SBA loan programs, including the 7(a), 504 and microloan programs 
  • A new round of $600-per-person economic impact payments for eligible recipients (not subject to garnishment) 
  • An extension of enhanced unemployment insurance 
  • An extension until Jan. 1, 2022, of the troubled debt restructuring provisions that were included in the CARES Act 
  • A delay of CECL implementation until Jan. 1, 2022 

Summary

Expansion of Permitted Purposes for PPP Covered Loans 
The new law adds four more “allowable uses” of PPP covered loans (which are retroactively effective except if a borrower already received forgiveness) to include the following: 

VIII.“Covered operations expenditures” as defined in the new law to mean: a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.  
 
IX. “Covered property damage costs” as defined in the new law to mean: a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation. 
 
X. “Covered supplier costs” as defined in the new law to mean: an expenditure made by an entity to a supplier of goods for the supply of goods that (A) are essential to the operations of the entity at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order: (i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan. 
 
XI. “Covered worker protection expenditures”, as defined in the new law to mean:  
 
(A) means an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et 8 seq.) with respect to the Coronavirus Disease 2019 (COVID–19) expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19;  
 
(B) may include—  

(i) the purchase, maintenance, or renovation of assets that create or expand—  

(I)  a drive-through window facility;  
(II) an indoor, outdoor, or combined air or air pressure ventilation or filtration system;  
(III) a physical barrier such as a sneeze guard;  
(IV) an expansion of additional indoor, outdoor, or combined business space;  
(V)   an onsite or offsite health screening capability; or  
(VI) other assets relating to the compliance with the requirements or guidance described in subparagraph (A), as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and  

(ii) the purchase of—  

(I) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation;  
particulate filtering face piece respirators approved by the National Institute for
(II) Occupational Safety and Health, including those approved only for emergency use authorization; or  
(III) other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and  

(C) does not include residential real property or intangible property. 

These new four categories for which PPP loan monies may be used were also added to other important areas of the existing law related to forgiveness. These changes mean that if a small business owner received or receives a PPP loan, any monies spent in one or more of these new 4 categories will also be considered forgivable expenses under the program. However, these costs along with other allowed “non-payroll costs” are still subject to the 40% test. This means that the PPP loan proceeds must continue to be used 60% for payroll costs and 40% for non-payroll costs. 
 
Simplified PPP Forgiveness Application 
The new law provides a simplified forgiveness application for covered loans up to $150,000, regardless of when made, which SBA is required to create within 24 days after the date of enactment. The form, which may not exceed one page in length, will contain certifications from the borrower, and shall only require the borrower to provide: a description of the number of employees the borrower was able to retain because of the covered loan; the estimated amount of the covered loan amount spent by the borrower on payroll costs; and the total loan value. The form will also contain attestations that the borrower accurate provided the required certification and complied with the requirements in the law.  
 
Finally, the borrower is required to retain records relevant to the form that prove compliance with the requirements. For employment records, the borrower is required to retain those documents for the 4-year period following submission of the forgiveness application. For all other records, the borrower is required to retain those documents for the 3-year period following submission of the form. Borrowers of a covered loan not more than $150,000 shall not, at the time of applying for forgiveness, be required to submit any application or documentation in addition to the one-page form and information required to substantiate forgiveness. Nonetheless, nothing in the new law would exempt a borrower from having to provide additional documentation if required by the lender, or if required by the SBA pursuant to an audit. 

The documentation requirements for covered loans more than $150,000 did not change. 
 
Specific Group Insurance Payments as Payroll Costs 
The new law codifies a previous interpretation by providing that payments for group life, disability, vision or dental insurance are included in the definition of “payroll costs” in addition to group health care benefits which was enumerated in the original CARES Act. This change is effective retroactively as well. 
 
Collection of Certain Demographic Information 
The new law requires that both the loan origination application and the forgiveness application be modified to collect certain optional information related to the owner of the borrower, including the sex, race, ethnicity and veteran status of the owner. 
 
Clarification of and Additional Limitations on Eligibility 
The new law clarifies that if a business or organization was not in operation on February 15, 2020, then it is not eligible for a PPP loan. Furthermore, the new law clarifies that any entity that received a shuttered venue operator grant is also not eligible for a PPP loan. 
 
PPP Second Draw Loans 
The new law creates a new structure where certain borrowers that already received a PPP loan are able to request a second loan subject to very specific terms and conditions. Most of the definitions of the PPP program found in the original CARES Act are retained for this purpose with the notable exception of “eligible entity.” This new term is intended to be used instead of borrower or “eligible recipient” wherever those terms are found in the original law.  

An “eligible entity” is defined to mean: 

I. Any business concern, nonprofit organization, housing cooperative, veterans organization, Tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative that—  

(aa) employs not more than 300 employees; and  

(bb)(AA) except as provided in subitems (BB), (CC), and (DD), had gross receipts during the first, second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter in 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the same quarter in 2019;  

(BB) if the entity was not in business during the first or second quarter of 2019, but was in business during the third and fourth quarter of 2019, had gross receipts during the first, second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter of 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the third or fourth quarter of 2019;  

(CC) if the entity was not in business during the first, second, or third quarter of 2019, but was in business during the fourth quarter of 2019, had gross receipts during the first, second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter of 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the fourth quarter of 2019; or 

(DD) if the entity was not in business during 2019, but was in operation on February 15, 2020, had gross receipts during the second, third, or, only with respect to an application submitted on or after January 1, 2021, fourth quarter of 2020 that demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the first quarter of 2020. 

The law further describes a narrow set of additional entities that may be eligible and delineates several that are specifically ineligible.  

The SBA guarantee will be in place for these covered loans as well under the same terms as lenders were given in the original CARES Act, except as otherwise stated in this section  

The maximum loan amount for these second draw PPP loans varies based on the type of business applying. In general, the maximum loan amount is the lesser of: 2.5 times the average total monthly payment for payroll costs incurred by the eligible entity during the one year period before the date on which the loan is made (or, at the election of the eligible entity, calendar year 2019); or $2,000,000.  

For seasonal employers, the maximum loan amount is the lesser of, at the election of the eligible entity, 2.5 times the average total monthly payments for payroll costs incurred by the eligible entity for any 12-week period between February 15, 2019 and February 15, 2020; or $2,000,000.  

For new entities that did not exist in the one-year period prior to February 15, 2020, the maximum loan amount is the lesser of:  

I. the product obtained by multiplying—  

(aa) the quotient obtained by dividing—  

(AA) the sum of the total monthly payments by the eligible entity for payroll costs paid or incurred by the eligible entity as of the date on which the eligible entity applies for the covered loan; by  

(BB) the number of months in which those payroll costs were paid or incurred; by  

(bb) 2.5; or  

(II) $2,000,000. 

The maximum amount of a covered loan made to an eligible entity that is assigned a North American Industry Classification System code beginning with 72 (generally, the food service sector) at the time of disbursal is the lesser of: 3.5 times the average total monthly payment for payroll costs incurred by the eligible entity during the 1-year period before the date on which the loan is made (or at the election of the eligible entity, calendar year 2019); or $2,000,000. 

For loans up to $150,000, an eligible entity may certify that it suffered a 25% revenue loss in any quarter compared to that same quarter in 2019. If an entity certifies to this revenue loss, then on or before submission of a forgiveness application, the entity must submit documentation to substantiate that revenue loss.  

New Lender Fees 
The new law has changed what may be paid for lender’s fees for small dollar PPP loans regardless of whether it is a first or second draw loan. Lender fees for larger loan categories remains the same as what was provided in the original CARES Act. For a loan amount up to $50,000, lenders will receive the lesser of 50% of the principal loan amount or $2,500. For loans of more than $50,000 to $350,000, lenders will receive 5% of the principal loan amount. For loans greater than $350,000, lenders will receive 3% of the principal loan amount.PPP Forgiveness and EIDL 
The new law repeals the language in the CARES Act that caused borrowers that received both an EIDL advance and a PPP loan to not receive full forgiveness of the PPP loan. This provision is retroactive; however, at this time it is unknown how SBA will handle reimbursing borrowers where forgiveness decisions have already been made. 
 
Hold Harmless 
The new law provides greater hold harmless clarity for lenders, stating that lenders may rely on all documentation and certifications submitted by a borrower, and is not subject for enforcement action for any falsehoods contained in a borrower’s origination or forgiveness application if the lender acts in good faith and follows all relevant laws and regulations.  
 
Other PPP Changes 
There are several other changes made to the PPP program not described above that are unique to certain situations. For example, the definition of seasonal employer is changed. In addition, specific eligibility criteria have been established for certain groups such as news organizations and destination marketing organizations. WBA will produce additional comprehensive compliance resources for its members that will include all aspects of the changes in the law, in addition to incorporating rulemaking and other guidance from SBA as it is issued over the course of the next 10-45 days.   

The following highlights the provisions in the new law of interest to bankers that are not related to the PPP program. 

New Round of Economic Impact Payments 
An additional round of economic relief payments is to be made available in the next several days. An individual with an income of $75,000 or less may receive a maximum amount of $600. The amount of payment will be prorated for individuals with an income greater than $75,000. An individual with an income greater than $87,000 will not receive payment unless the individual has dependents. If a couple files a joint tax return, the couple can receive up to $1,200 for an income threshold of up to $150,000, with a cutoff from payment at $174,000. A dependent may also receive $600. The Treasury Department and IRS have been instructed to make the payments available as soon as possible and it is expected that payments will be made electronically wherever possible. The agencies have the authority to make payment to any account for which the individual has previously authorized the IRS to use on or after January 1, 2019, for the payment of a tax refund.  Banks should prepare for receipt of new relief payments by customers.  
 
Continuation of Unemployment Benefits  
The relief bill has extended unemployment aid. The new level of payment is $300 per week for payments beginning after December 26, 2020 until March 14, 2021. As banks in Wisconsin have experienced high levels of unauthorized or fraudulent payments related to unemployment benefits, banks should continue their diligent monitoring and identification of such transactions or activity.  
 
Temporary Relief from CECL Standards  
The relief bill has also extended the implementation period of CECL for banks. The new period for implementation of the CECL standard is the earlier of the first day of the fiscal year of the bank that begins after the termination date of the national pandemic emergency, or January 1, 2022. This is an extension from December 31, 2020. Banks are still encouraged to work closely with their accounting resources regarding how best to implement requirements under CECL. Banks’ regulators should also be kept apprised of decisions and implementation status.  
 
Extension of Relief from Troubled Debt Restructuring (TDR)  
The termination date of the CARES Act provision which allowed banks greater flexibility when classifying a credit as a TDR has been extended. The original relief was to expire next week on December 31, 2020. The relief bill extends relief afforded by TDRs under the CARES Act until January 1, 2022. The extension will allow banks the necessary flexibility to continue to work with struggling borrowers. Banks are encouraged to continue to work with struggling borrowers, to keep in constant contact with borrowers so as to identify risks, and act accordingly in a timely manner.  
 
Cybersecurity of Financial Systems Resiliency  
The relief bill requires the federal banking regulators to report to Congress within 180 days after enactment of the relief bill, and annually thereafter, of the steps the agencies have taken to strengthen cybersecurity within the financial services industry. Banks can expect continued heightened regulator scrutiny in examinations as the topic of cybersecurity continues to be a focus of bank regulators.  
 
Extension of Eviction Moratorium  
The order issued by the Center of Disease and Control Prevention (CDC) entitled, Temporary Halt in Residential Eviction to Prevent the Future Spread of COVID-19, has been extended through January 31, 2021.  
 
Revision to Certain Bankruptcy Processes  
The relief bill has made revision to procedures under Titles 11 and 13 of the U.S. Code. One example, is the creation of a new procedure to allow the bankruptcy court to grant discharge of debt dischargeable to a debtor who has not completed payments to the trustee or creditor holding a security interest in a principal residence if the debtor defaults on no more than three monthly payments on or after March 13, 2020, caused by a material, financial hardship related to COVID-19. Other revisions include the creation of a CARES forbearance claim. Only a creditor is authorized to file this supplemental proof of claim. Banks will need to continue to work closely with counsel as it relates to bankruptcy filings and procedures to ensure revisions made by the relief bill are incorporated into bank’s bankruptcy strategy.