Shortly after the start of the new year, the federal government began administering a second round of stimulus aimed at providing relief for the negative economic effects of the mitigation measures put in place to help stall the spread of the coronavirus.
In addition to supplemental unemployment and direct payments to individuals, the measures passed by Congress also included additional Payroll Protection Program, or PPP, loans for small businesses.
These loans are intended to help businesses with 500 employees or less to continue to pay workers and cover costs such as rents and mortgages during the pandemic. PPP loans are also intended to be forgivable, and for small loan recipients the process of applying for forgiveness has been made even easier.
In October 2020, the U.S. Small Business Administration, or SBA, released new rules that will allow a simpler loan forgiveness process for businesses that receive COVID-19 financial assistance loans totaling less than $50,000.
This is an important change that provides additional flexibility for small businesses and sole proprietorships in Illinois that received over $2.9 billion in loans below the $50,000 threshold in the first round of the program during the spring and summer of 2020.
More than 161,000 businesses in the state have received smaller SBA loans that are now eligible to be fully repaid by the federal government after filling out a simple one-page form. Nearly 125,000 of those loans were to businesses that reported four employees or less but still supported 455,372 jobs according to applicant disclosures.
The PPP loans were based on payroll amounts and other costs from the previous year for businesses affected by the coronavirus pandemic mitigation measures.
It should be noted that larger entities also received assistance through a loophole that allowed companies with multiple locations that each have less than 500 employees to qualify as affiliates and take on multiple loans.
The original loan maximum was $2 million per affiliate, but it has been reported that some employers were able to obtain more than $10 million by stringing together multiple sites. In all, the SBA funded $670 billion in loans from the program last year.
The new round of PPP loans that will be awarded in 2021 were funded for an additional $284 billion.
These loans have an interest cost of only 1% annually, have either a two-year or a five-year maturity, and are eligible for full forgiveness by the federal government if the business provides evidence that it maintains the same level of staffing prior to the COVID-19 shutdown, and used 60% of the proceeds of the loan for payroll purposes and the rest for other eligible overhead costs such as rents or mortgages.
On Oct. 8, the SBA issued a revised rule for the smaller businesses that received loans of $50,000 or less (and no more than $2 million in aggregate loans across its affiliates). These businesses no longer are required to provide evidence that they maintained the same employee head count to qualify for full loan forgiveness. They also no longer need to provide the calculations for the amount they are requesting be forgiven.
With the head count requirement removed, the recipient businesses of loans of $50,000 or less only need to attest to the following to qualify for full repayment:
- funds were used to pay costs that are eligible for forgiveness (payroll costs to retain employees, business mortgage interest payments, business rent or lease payments, or business utility payments);
- payroll costs were equal to at least 60% of the forgiveness amount;
- if a 24-week covered period applies, the covered period does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual; and
- if the borrower has elected an eight-week covered period, the covered period does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.
The smaller loans now can receive full forgiveness without providing background records or additional accounting for the use of the loan, but businesses must retain the original applications and records of the expenditures for up to six years.
Applications for loan forgiveness will be processed by the lenders that businesses used to obtain the funds. Even though the SBA released the forms for simple forgiveness months ago, most businesses are still waiting to hear from financial institutions about their individual processes for completing the application.
Kabbage, an online lender that serviced 12,915 small PPP loans totaling $210 million, said its clients should wait for email notifications on how to start the forgiveness process.
This easier application has not been widely covered in the media and benefits a large swath of the Illinois economy affected by the COVID-19 economic crisis. The largest number of small PPP loans went to companies in the trucking industry, followed by restaurants and insurance brokers.
The following chart shows the number of loans and amounts received for the top 10 industries in the state that would qualify for the simplified forgiveness process: