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Financing

Navigating the changes in the new Paycheck Protection Program

The tweaks include a much lower cap on loan size to shift more of the funding toward small businesses.
Photograph: Shutterstock

Restaurants that received a Paycheck Protection Program (PPP) loan in the plan’s first go-round can apply for a second advance of relief funds starting Wednesday, though with several changes in loan policies—including a $2 million cap on the borrowable amount.

Corporations operating multiple outlets can borrow up to $4 million in total, and publicly owned companies are ineligible.

To ensure small businesses are the principal recipients of the $284 billion earmarked for the program’s new incarnation, eligibility is also limited to restaurant operations and other enterprises employing fewer than 300 people per location.

Under the program’s initial setup at the start of the pandemic, businesses could apply if their payrolls included up to 500 full-time workers, and the loan amounts were capped at $10 million. This time around, loans are limited to 3.5 months of an applicant’s payroll for the 12 months preceding the loan or all of 2019, up to $2 million.

Applicants must have suffered at least a 25% drop in revenues for any quarter of 2020. If the loan amount they seek is greater than $150,000, the would-be borrower has to provide proof of the sales decline upfront. If the amount is $150,000 or less, that proof will not be required until the borrower files for loan forgiveness.

Certain particulars remain the same. The interest rate is still set at 1%, with a five-year term. And the loans are still forgivable if the money is spent to cover certain specified costs.

Rent, payroll, occupancy costs and utilities are still on that roster of covered expenses. The list has been expanded this time to include re-opening expenses; expenditures for personal protection equipment and other anti-COVID safeguards; and a business’ usual operating expenses.

In addition, the money can be spent over any eight-to-24-week period set by the borrower prior to March 31. Restaurateurs complained under the first setup of the program that they were required to spend the money within eight weeks of receiving the funds—a time when many of the recipients were closed because of COVID-19 safety protocols, and operating capital was unneeded. The timeframe was later changed to 24 weeks.

The window for loans remains open until March 31. Second-time borrowers are required to deplete all of the money they were lent in the program’s first iteration by the time their second loans would be disbursed.

The law creating the second round of the Paycheck Protection Program specifies that forgiven amounts are not treated as taxable income, a reversal of an Internal Revenue Service ruling that had riled the industry. In addition, forgiven amounts are not factored into the determination of whether 2020 revenues fell by at least 25% in at least one quarter.

Lending to first-time borrowers under the Paycheck Protection Program began on Monday. The first round of loanable funds was distributed to community lenders to channel more money to women and minorities.

The first round of loans proved a lifeline for many restaurants, though the initial arrangement proved buggy and controversial. A number of big public restaurant companies were found to be recipients, prompting many to give the money back. Many applicants complained that the process was difficult to navigate, and seemed to favor businesses that had a longstanding relationship with participating vendors. 

For the sake of time, the PPP policies and procedures released by the program's administrator, the U.S. Small Business Administration, were issued as final rules rather than proposals subject to change after the public had time to analyze them. 

The new program was created under legislation signed into law on Dec. 27 by President Trump. President-elect Biden has called that package of relief a "down payment," and has vowed to secure more aid for hard-pressed sectors of the nation. 

CORRECTION: An earlier version of this story erroneously reported that all businesses can compute their maximum PPP by multiplying their monthly payroll expenses by 2.5, up to a maximum of $2 million. As a special concession to restaurants, lawmakers changed the multiplier to 3.5. 

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