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Third Round of PPP Loans Review By California Business Lawyer Corporate Lawyer


Congress has finally approved additional support for those affected by Covid-19. Of the $900 billion relief package, $284 billion has set aside for a third round of PPP loans to help small businesses.

This round of funding is part of the Consolidated Appropriations Act of 2021 and has made a few changes to the conditions and regulations of the Paycheck Protection Program; therefore, contact a business law attorney to assist with the PPP application. While the SBA has yet to release their guidelines, the changes to the PPP are:

  • Small businesses who have faced significant decreases in revenue can seek a second PPP loan.
  • Additions to the list of approved business expenses for a forgivable PPP loan.
  • Clarifications on whether business expenses paid with a forgivable PPP loan are tax deductible.
  • $20 million earmarked for the EIDL Program
  • $15 billion earmarked for cultural institutions, independent movie theatres, and cultural institutions.
  • Eligibility for Section 501(c)(6) not-for-profit organizations.

Read on for further detail of the confirmed changes to the Paycheck Protection Program under the Consolidated Appropriations Act of 2021 or contact a business lawyer to assist you.

Eligibility Criteria for a Third PPP Loan

If a business already received a PPP loan during the first round, they may still apply for a third one if they meet all of the following criteria:

  1. They employ 300 employees or fewer
  2. They have completely used their first PPP loan
  3. Their revenue for a quarter in 2020 is 25% less than the same quarter in 2019

Note, these eligibility requirements only apply to those applying for a third PPP loan. If your business is an entity, please consult with a corporate lawyer to assist you.

Section 501(c)(6) Not-For-Profit Organizations Now Eligible

Section 501(c)(6) not-for-profit organizations are now eligible for PPP loans if they meet the following eligibility requirements:

  • They employ 300 employees or fewer
  • Lobbying activities account for 15% or less of their revenue
  • Lobbying activities account for 15% or less of the organization’s activities
  • The total cost of lobbying activities in the 19/20 tax year was less than $1 million.

Businesses in Bankruptcy May Apply for PPP Loans

Businesses in the midst of bankruptcy may apply for a PPP loan under the new guidelines. The loan will be treated the same as any other administrative claims, and the borrower must repay any unforgivable portions of the PPP loan. Chapter 11 cases must also repay unforgivable portions of the PPP loan and are not permitted to cram down.

Changes to the Maximum Loan Cap For a Third PPP Loan

The maximum loan amount will still cap at $10 million for first-time PPP borrowers. However, for third-time borrowers, the maximum loan amount will cap at $2 million

How to Calculate the Maximum Loan Amount

Businesses multiply their average monthly payroll by 2.5 to calculate their maximum loan amount. They have the option to calculate their average monthly payroll based on the 2019 calendar year or by the one year period ending the date of the loan.

Exceptions for the Hospitality Industry

Hospitality industry businesses with NAICS Code 72 can multiply their average monthly payroll costs by 3.5 instead of 2.5 to calculate the maximum loan amount. They can use either option to calculate their average monthly payroll, and they are still subject to the $2 million cap. Businesses with that NAICS Code include restaurants and hotels.

Approved Business Expenses for a Forgivable PPP Loan

Under the third round of PPP funding, Congress has expanded the list of approved business expenses. A forgivable PPP loan can now be used to pay:

  • Rent
  • Payroll expenses
  • Utilities
  • Mortgage interest
  • Business software or computing services necessary for business operations
  • Changes that allow businesses to comply with government Covid-19 guidelines to make their premises safe for workers.
  • Costs of maintaining an existing contract with suppliers essential to business operations
  • Costs to repair property damage, vandalism, or looting that occurred during 2020’s public disturbances. These costs must not already be covered by insurance or other relief.

Length of the Covered Period

In the initial round of PPP loans, the covered period was eight weeks from the date the business received the PPP loan. This was then amended to 24 weeks as the pandemic continued. In the third round of PPP loans, businesses may choose their own covered period. The covered period must be between eight and 24 weeks, inclusive.

Tax Treatment

The Consolidated Appropriations Act of 2021 has made the following changes regarding tax and the PPP loans.

  • PPP loans are not counted as taxable income.
  • Any expenses paid with a forgiven PPP loan will become tax-deductible. This includes any business expenses paid by a first-round PPP loan.
  • If the business’s income tax basis increases because of the PPP loan, this will remain, even for forgivable PPP loans.

Changes to the Forgiveness of EIDL Advances

In the initial round of PPP loans, businesses who had received an EIDL Advance had to essentially repay the advance. The amount of their EIDL Advance was subtracted from their PPP loan forgiveness and therefore had to be repaid. This will no longer be the case in the third round of PPP loans, and the SBA has suggested that businesses whose PPP loan forgiveness was affected by an EIDL Advance may amend their forgiveness application. They will release further guidance in the coming weeks.

Changes to Forgiveness Applications for PPP Loans Under $150,000

The forgiveness application for small PPP loans, under $150,000 will be reduced down to a single page certification. The form will ask borrowers to self-certify rather than show how they arrived at their calculations. It will ask for the amount of the loan, how much was spent on payroll expenses, and how many employees they retained due to the loan.

Businesses should be careful when filling out this form as a false certification holds significant liability. Filling out a draft of the long-form application will help ensure calculations are correct on the self-certification.

Borrowers who submit a simplified self-certification will still need to retain their employment records for four years and records relating to the forgiveness application for three years.



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