The Consolidated Appropriations Act, 2021 (CAA), signed into law by President Donald Trump on Dec. 27, 2020, included new funding for the Paycheck Protection Program (PPP), which expired Aug. 8, 2020.

The PPP was a U.S. loan program established to help small businesses affected by the economic slowdown associated with the COVID pandemic to pay the wages of employees and certain other expenses. It was created by the CARES Act and originally included $349 billion in funding. However, that money was gone within two weeks, resulting in the second round of funding totaling $310 billion.

After round two loans ended in August of 2020, the CAA authorized the third round of PPP loans. Round three funding of $284 billion expanded on the original PPP goals of providing loans to businesses for payroll and other costs to help them remain viable and allow their workers to pay their bills. However, those funds were depleted, and as of May 31, 2021, the PPP program was no longer available.

The table below outlines all three rounds of PPP loan funding.

Sources: H.R. 748, H.R. 266, H.R. 133

Changes to the PPP Program Announced by the Biden Administration

On Feb. 22, 2021, the White House announced five changes to the Paycheck Protection Program. One change had a set term of two weeks. The other four would be effective until at least the end of March 2021.

These changes were designed to make PPP funds available to very small businesses and others that had been inadequately helped by the program, according to the Biden administration.

• Beginning on Wed., Feb. 24, 2021 through Tue. March 9, 2021, businesses with fewer than 20 employees were permitted to apply for PPP funding.
• The formula used to calculate PPP loans was revised to provide more funding for sole proprietors, independent contractors, and self-employed individuals. An additional $1 billion was allocated for these individuals in low-and moderate-income (LMI) areas.
• Eligibility for PPP funding was extended to small business owners with non-fraud related felonies as long as the applicant was not incarcerated at the time of the application.
• Business owners with delinquent federal student loans were eligible for a PPP loan.
• Non-citizens who were lawful U.S. residents were also eligible and allowed to use their Individual Taxpayer Identification Numbers (ITINs) to apply.

First-Draw vs. Second-Draw Loans

The CAA provided for two types of round three PPP loans. The first type was initial or first-draw loans up to $10 million for entities that had never received a PPP loan. The second type was second-draw loans of up to $2 million for entities that had received PPP loans.

Following guidance from the U.S. Small Business Administration (SBA) and Treasury Department, community financial institutions including Community Development Financial Institutions (CDFIs) began making first-draw PPP loans on Mon., Jan. 11, and second-draw loans on Wed., Jan. 13. 

Small lenders with less than $1 billion in assets were slated to begin making both first- and second-draw loans on Fri., Jan. 15. All approved PPP lenders could begin lending on Tues., Jan. 19, 2021.

PPP Third-Round General Terms and Conditions

Both first- and second-draw PPP loans were subject (but not limited) to the same general terms and conditions as original PPP loans under the CARES Act:

• Loans were 100% guaranteed by the government.
• No collateral was required.
• No personal guarantees were required.
• The interest rate for all loans was 1% and maturity was five years.

PPP Third-Round Eligible Entities

While there were key differences between first- and second-draw PPP loans, the types of eligible entities were the same.

• Small businesses with 500 or fewer employees (300 or fewer for second-draw loans)
• Businesses categorized as “Accommodation or Food Services” such as restaurants and hotels with 500 or fewer employees per location (300 or fewer for second-draw loans)
• Independently owned franchises
• Self-employed workers, independent contractors, gig workers, and sole proprietors
• 501(c)(3) businesses or tax-exempt nonprofit organizations; tax-exempt 501(c)(19) veterans organizations; 31(b)(2)(C) tribal business concerns
• Housing cooperatives; eligible section 501(c)(6) organizations, or eligible destination marketing organizations with 300 or fewer employees
• News organizations that were majority-owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS 511110 or 5151 with 500 or fewer employees
• Business must have been in operation on Feb. 15, 2020

Additional Second-Draw Requirements

Second-draw PPP loans had some restrictions that first-draw loans didn’t have. Businesses couldn’t receive a second-draw loan of up to $2 million unless they met the following conditions:

• They had received and used (or expected to use) all proceeds from the first-draw loan by the time they received (or expected to receive) the second-draw loan proceeds
• They had 300 or fewer employees
• They could demonstrate that they experienced a loss of at least 25% of gross receipts in any quarter during 2020 compared to the same quarter in 2019
• They spent all proceeds from their first-draw loan on eligible expenses

Second-Draw Borrower Exclusions

Round 3 guidelines excluded businesses from a second-draw loan if a company was:

• Permanently closed
• Ineligible under existing SBA regulations
• Primarily engaged in lobbying or other political activities
• Owned by an entity created in, or with significant operations in, the People’s Republic of China or the Special Administrative Region of Hong Kong
• Included a board member who was a resident of the People’s Republic of China
• A recipient of a shuttered venue operator grant under Section 24 of the Act.

Required Certifications for PPP Loans

Businesses were required to certify that pandemic-related economic uncertainty made the loan request necessary to support ongoing operations and that funds would be used as required. This included using no more than 40% for non-payroll costs. This requirement applied to both first- and second-draw PPP loans.

Special New Set-Aside Funding

Round 3 included special set-aside funding for specific groups of first- and second-draw borrowers.

• $15 billion for lending by community financial institutions
• $15 billion 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
• $15 billion and $25 billion for first-draw and second-draw PPP loans for borrowers with 10 employees or fewer, or for loans of less than $250,000 to borrowers in low-or moderate-income neighborhoods

Application Dates for a Third-Round PPP Loan

As noted above, applications for Round 3 first-draw PPP loans from approved community financial institutions started Mon., Jan. 11, 2021. Second-draw applications began on Wed., Jan. 13. That was followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021. All SBA 7(a) lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021.

Third-Round PPP Application Deadline

The Consolidated Appropriations Act, 2021 (CAA) extended the Paycheck Protection Program (PPP) through March 31, 2021 or until funds ran out. PPP funds were exhausted as of May 31, 2021, meaning the PPP program was no longer available as of that date.

The amount of funds made available in the third round totaled $284 billion. Maximum loans of $10 million were available to first-draw borrowers, and loans up to $2 million were offered to second-draw, small business owners.

Application Process for a Third-Round PPP Loan

New first- and second-draw loans followed a pattern similar to that followed with previous PPP loans. Business owners could download and fill out the loan application from the SBA website.

The first-draw application was five pages long, including instructions, and the second-draw application was six pages, including instructions.

Covered Period for Third-Round PPP

Round 1 and Round 2 PPP loans stipulated that the period during which a business had to use its loan proceeds (the covered period) was an eight-week period beginning on the date the business received its loan proceeds. That was later expanded to 24 weeks.

Round 3 allowed a business to choose any length period between eight weeks and 24 weeks, giving it more control over how to handle any needed reductions in a workforce, once PPP funds were depleted.

Use of Third-Round PPP Funds

The CAA expanded the types of expenses for which a business could use Round 3 PPP funds. This also applied to existing PPP loan funds (unless the business already had obtained forgiveness).

In addition to payroll, rent, covered mortgage interest, and utilities, the Paycheck Protection Program allowed a business to use loan proceeds for:

• Certain operations expenses including business software; business-related cloud computing services; product or service delivery; payroll processing, payment, and tracking costs; HR and billing functions; tracking of supplies, inventory, records, and expenses
• Covered property damage costs including costs related to damage or vandalism caused by looting or public disturbances in 2020 that were not covered by insurance or other compensation
• Listed supplier costs including payments to a supplier of goods that were essential to operations and made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
• Covered worker protection expenses including operating or capital expenditures required to comply with requirements or guidance issued by the CDC, HHS, OSHA, or any state or local government during the period beginning March 1, 2020, and ending on the date when the national emergency expired

Tax Treatment of Third-Round PPP Loans

Round 3 PPP loans were not included in a company’s taxable income. If a loan was forgiven, expenses paid with the proceeds of the loan were tax-deductible. Further, this rule applied to new, existing, and previous PPP loans. In addition, any income tax basis increase that resulted from a PPP loan remained even if the PPP loan was eventually forgiven.