On March 16, the House passed 415-13 H.R. 1799, the PPP Extension Act of 2021. The bill would extend the Paycheck Protection Program (PPP) loan application deadline to May 31 from March 31 and give the Small Business Administration (SBA) an additional month to complete processing loans through June 30, 2021. The bill now heads to the Senate for consideration, where it has bipartisan support, though key senators, including Sen. Marco Rubio (R-FL) and Susan Collins (R-ME), are considering modifications to the House-passed bill.
The PPP was created in response to the COVID-19 pandemic and provides forgivable loans to small businesses to keep employees on the payroll and cover other expenses. As of March 7, 2021, SBA reported $126 billion in remaining PPP funds. Overall, more than 7.5 million PPP loans have been approved, with 2.4 million loans in 2021 so far. Most recently, the American Rescue Plan Act (P.L. 117-2) expanded the PPP eligibility. On March 18, the SBA released guidance on changes made by the ARPA.
In addition to H.R. 1799, several other pieces of small-business-related legislation have been introduced in the House.
- R. 1502, introduced by Rep. Andy Kim (D-NJ), which would increase the average maximum loan under the SBA microloan program to $10,000, from $7,500.
- R. 1487, introduced by Rep. Tim Burchett (R-TN), which would require the SBA to submit an annual report to Congress on the microloan program.
- R. 1490, introduced by Rep. Angie Craig (D-MN), which would allow small manufacturers to access larger 504 loans and a more streamlined closing process.
- R. 1482, introduced by Rep. Dan Bishop (R-NC), which would expand oversight and enforcement of the 504 loan program.
- R. 1651, introduced by House Judiciary Chair Jerry Nadler (D-NY), which would extend small business bankruptcy relief provisions enacted by the CARES Act through March 27, 2022.
I. American Rescue Plan
The American Rescue Plan (ARP) includes several modifications to existing SBA programs, as well as the creation of new programs to help small businesses find relief. Outlined below are key changes to small-business lending and grant programs.
A. Modifications to Existing SBA Programs
Paycheck Protection Program (PPP)
Section 5001 of the ARP amends the PPP to expand eligibility to certain nonprofit entities, including 501(c)(3), (4), (6), or (19) organization, with 500 employees or less. Nonprofits that engage in limited lobbying activity and have 300 employees or less will now also be eligible. Lobbying activity is limited to not more than 15% of receipts and cost of the lobbying activities did not exceed $1 million. It also expands eligibility for second draw loans to internet publishing organizations (North American Industry Classification System (NAICS) code 519130) with 500 employees or less that support local and regional news. The law also now allows for better coordination with COBRA coverage premiums. The ARP slightly increased the overall appropriations for PPP to $813.7 billion, up from $806.45 billion—an increase in direct appropriations of $7.25 billion for the program.
Economic Injury Disaster Loan (EIDL)
Section 5002 of the ARP provides an additional $15 billion in EIDL advance grants to businesses that experienced an economic loss due to COVID-19. It also requires that $10 billion of appropriated funds be used to ensure that entities that did not receive the full $10,000 advance amount receive the full amount. Additionally, the ARP requires $5 billion of the EIDL advance funds to be used to issue $5,000 in additional grants to businesses that have suffered an economic loss of more than 50% and employ no more than 10 people.
Shuttered Venue Operator (SVO) Grants
Section 5005 of the ARP provides $1.25 billion in additional funds to the SVO Grant program. The program was enacted on Dec. 27, 2020, by the Consolidated Appropriations Act of 2020. However, SBA is still in the process of implementing the program and is not currently accepting applications, and will likely not start until after March. Five hundred thousand dollars of appropriated funds will be applied to give technical assistance to applicants. The ARP also now allows for PPP loan amounts received to be deducted from SVO grant awards. Prior to the passage of the ARP, entities were prohibited from applying for both an SVO grant and a PPP loan.
B. State Small Business Credit Initiative at Treasury Department
Section 3301 of the ARP amends the State Small Business Credit Initiative Act of 2010 (12 U.S.C. 5701) to provide $10 billion in funds to support state-led small-business lending programs. The State Small Business Credit Initiative (SSBCI) program is administered by the Department of the Treasury. The ARP revives the expired program that previously provided $1.5 billion in funds to states for programs that support financing of small businesses. See U.S. Department of the Treasury, State Small Business Credit Initiative.
The program leveraged nearly $1.5 billion in federal funds to provide roughly $8 billion in small-business loans between 2011 and 2015 in 47 states, the District of Columbia, five U.S. territories, and municipalities in three states. Awards were granted based on the total number of unemployed in each state. In order to qualify for the program, a state must show that they reasonably expect $10 in new small-business financing for every $1 spent.
The Biden administration has touted the ARP-revived SSBCI program as $10 billion in federal funds available to be leveraged for $100 billion in state-level financing: $1.5 billion is reserved for socially and economically disadvantaged individuals; $500 million is reserved for very small businesses of 10 or fewer employees, as well as sole proprietors and independent contractors, and $500 million will also go to states for technical assistance to administer the program.
Tribal governments are now explicitly defined as a state within the SSBCI program, with $500 million reserved for tribal governments; but tribes must file a notice of intent to participate within 30 days of the reenactment of the SSBCI program, with the federal government allocating funds within 60 days of reenactment. A new provision for the program allows for unemployment data otherwise available to be considered if the Bureau of Labor Statistics or the Department of Labor does not have unemployment data available for a state (including a tribal government).
Programs implemented in states will likely be in the form of capital access, loan guarantee, collateral support, loan participation, and/or venture capital programs. Small businesses should look to state small-business agencies and local governments for developments with this program.
C. Creation of New SBA Programs
Restaurant Revitalization Grants
Section 5003 of the ARP appropriated $28.6 billion for the creation of a Restaurant Revitalization Fund to issue grants to struggling restaurants. The first 21-day period of the program will prioritize women-owned, veteran-owned, or socially and economically disadvantaged small business concerns. Five billion dollars is reserved for restaurants with gross receipts of $500,000 or less. The remaining $23.6 billion is to be granted in an “equitable manner” by SBA to eligible entities of different sizes. This language will give SBA some discretion in the allocation in grant awards, and will allow for regional markets to be considered when determining a gross receipt size standard for eligible entities after the 21-day period.
The eligibility criteria breaks from the PPP definitions of food services and instead defines an eligibility entity as “a restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink.” Therefore, applicants must be able to demonstrate that customers frequent their business for “the primary purpose of being served food or drink.” Businesses located in an airport terminal or a tribally owned business concern are included as eligible entities.
Certain businesses are excluded, including state or local government-operated businesses, applicants for Shuttered Venue Operator (SVO) grants, and publicly traded companies. Businesses that own or operate (together with any affiliated business) more than 20 locations are also excluded. The ARP defines “affiliated business for this program” as “a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business, provided that such affiliation shall be determined as of any arrangements or agreements in existence as of March 13, 2020.” This definition is more concrete than the definitions contained in typical SBA affiliation rules.
Amount of Grant
The amount of grants available to eligible entities during the covered period will be equal to the pandemic-related revenue loss of the eligible entity. Pandemic-related revenue losses are 2020 gross receipts subtracted by 2019 gross receipts, with alternate calculations for businesses not in business for all of 2019. PPP loan amounts will be deducted from the grant award amount. Grants are capped at $5 million per physical location, and $10 million for affiliated businesses.
The ARP defines eligible uses of the grants to include:
- payroll costs;
- payments of principal or interest on any mortgage obligation (but not prepayments), rent payments, including rent under a lease agreement (but not prepayments);
- maintenance expenses (including construction for outdoor seating, walls, floors, deck surfaces, furniture, fixtures and equipment);
- supplies (including protective equipment and cleaning materials);
- food and beverage expenses;
- covered supplier costs;
- operational expenses;
- paid sick leave; and
- any other expenses as determined by SBA.
Payroll costs for the grant program do not include qualified wages under the Employee Retention Tax Credit or COBRA premiums.
Duration of the Program
The covered period is Feb. 15, 2020, through Dec. 21, 2021, but the administrator may extend the covered period through March 11, 2023.
Community Navigator Pilot Program
Section 5004 of the ARP also provides $100 million for the creation of a community navigator pilot program to provide grants to private nonprofit organizations, resource partners, states, tribes, and units of local government to help underserved businesses access SBA-related resources. The ARP also allocates $75 million for the creation of a call center to assist businesses with accessing resources.