Congress Passes and President Trump Signs Year-End Appropriations Bill with Key Small Business and Other Lending and Liquidity Benefits

Practical Law Legal Update w-028-9809 (Approx. 11 pages)

Congress Passes and President Trump Signs Year-End Appropriations Bill with Key Small Business and Other Lending and Liquidity Benefits

by Practical Law Finance

SBA Loan Program Revisions and New Programs

Paycheck Protection Program Loans

The Act expands the PPP to provide additional forgivable loans for new borrowers and allows a second round of loans for certain small businesses (Act, Div. N, Title III, § 301 (Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act)). The Act:

Extends the PPP through March 31, 2021 and allocates an additional $284 billion for PPP Loans (§§ 323 (a)(1)(B) and (d)(1)(A)).
Allows PPP funds to be used for additional eligible expenses that will qualify for loan forgiveness, including:
- covered operations expenditures, including payments for software, cloud computing, payroll, human resources, and other business purposes;
- covered property damage costs, including costs from property damage and vandalism or looting due to public disturbances during 2020 that were not covered by insurance;
- covered supplier costs, including payments to a supplier for essential goods made under a contract, order, or purchase order in effect before the PPP Loan was made; or in the case of perishable goods, in effect before or during the term of the PPP Loan; and
- covered worker protection expenditures, including operating or capital costs incurred to comply with governmental safety requirements and guidelines related to COVID-19.
(§§ 304(a) and (b).)
In addition, eligible payroll costs now include group life, disability, vision, or dental insurance (308(a)).
Borrowers of prior PPP Loans made before the enactment of the Act may also use the expanded list of qualified expenses if the PPP Loan has not been forgiven. (§§ 304 (c)(1) and (2)).
Provides for second draw loans for certain businesses, up to $2 million per loan. These loans are available to borrowers with 300 or fewer employees (with exceptions for NAICS 72 entities such as restaurants and hotels), that have used or will use all of their first PPP Loan, and can show a 25% or greater reduction in gross receipts in one of the first three quarters of 2020 compared to the same quarter in 2019. Loans are available up to 2.5 times the borrower's average monthly payroll costs in the prior 12 months, and 3.5 times for restaurants and hospitality businesses.
Expands the definition of eligible borrowers to include nonprofit organizations, housing cooperatives, veterans' organizations, Tribal businesses, self-employed individuals, sole proprietors, independent contractors, small agricultural cooperatives, certain news organizations, and destination marketing organizations (§§ 311(a), 317, and 318). Eligible borrowers exclude any entity primarily engaged in political or lobbying activities, entities described in 13 C.F.R. § 120.110, other than at (a) and (k), Chinese- or Hong Kong-owned entities, and entities owned at least 20 percent by a covered individual, including the President, Vice President, members of Congress, and their spouses (§§ 311(a) and 322(a)).
Permits borrowers of prior PPP Loans that have not yet received loan forgiveness to return the initial PPP funds and request a new loan amount under the revised rules in the Act (§ 312(b)(1)). Borrowers of prior PPP Loans that did not accept the full amount of their loan, and have not received loan forgiveness, may request an increase in the amount of the loan to the maximum amount applicable under the Act (§ 312(b)(2)).
Provides for a simplified single-page forgiveness application for PPP Loans of $150,000 or less (§ 307).
Permits PPP borrowers to choose a covered period for loan forgiveness that is between eight and 24 weeks from loan origination rather than having to choose either an eight week or 24 week period (§ 306).
In addition to the initial PPP provision that PPP Loan forgiveness was not taxable as gross income, provides that deductions are permitted for deductible expenses paid with PPP Loan proceeds that are forgiven (§§ 278(a)(1) and (2)).
Repeals the reduction of the amount of the forgiveness of a PPP Loan received by an applicant who receives an EIDL Emergency Grant (§ 333).

For information on the initial PPP, see CARES Act: Stimulus for Small Businesses Under the SBA Checklist.

Grants for Shuttered Venue Operators

The Act appropriates $15 billion for a new SBA program of grants (SVO Grants) for operators of motion picture theaters, live theaters, performing arts venues, museums, and other cultural institutions adversely affected by the pandemic (§ 324). Specifically:

To qualify for an SVO Grant, an "eligible person or entity" must meet the following:
- its gross revenue in 2020 has fallen by at least 25% compared to 2019;
- it intends to resume operations;
- it operates commercially by charging for admission and having paid employees, rather than volunteers; and
- it is not among a list of excluded entities, such as large or public companies, entities funded by the federal government or owned by a State or its political subdivision, or entities that provide performances, products, or services of a "prurient sexual nature."
(§ 324(a)(1).)
The SVO Grant program is administered by the SBA Associate Administrator for the Office of Disaster Assistance. To participate, the entity must certify that economic uncertainty necessitates an SVO Grant to support its ongoing operations (§ 324(b)(1)).
The Act gives priority to entities that have been hardest hit by the pandemic. During the first 28 days that the SBA awards SVO Grants (the Priority Period):
- first priority, during the first 14 days, must be given to entities whose revenue during the last three quarters of 2020 is 10% or less of its revenue during the comparable period in 2019; and
- second priority, during the next 14 days, must be given to entities whose revenue during the last three quarters of 2020 is 30% or less of its revenue during the comparable period in 2019.
(§ 324(b)(2).)
Out of the $15 billion appropriation, up to 80% ($12 billion) is earmarked for Priority Period SVO Grants (§ 324(b)(2)(B)(iv)).
Following the Priority Period, the SBA may make additional SVO Grants (Supplemental SVO Grants) to recipients of Priority Period SVO Grants in an amount equal to 50% of the initial SVO Grant if, as of April 1, 2021, the entity's revenue for the preceding quarter is no more than 30% of its revenue in the first quarter of 2019 (§ 324(b)(3)).
The Act contains a small employer set-aside of at least $2 billion for entities that employ fewer than 50 full-time employees. SVO Grants under this part of the program are to be awarded during the first 60 days that the SBA awards SVO Grants (§ 324(b)(2)(E)).
SVO Grants are limited to a maximum amount of $10 million, subject to the additional limitation that:
- Priority Period SVO Grants in general should equal 45% of the entity's gross revenue during 2019;
- Supplemental SVO Grants must equal 50% of the amount of the entity's Priority Period SVO Grant; and
- the aggregate amount of all SVO Grants received by the entity must not exceed $10 million.
(§ 324(c).)
SVO Grant funds may be used to cover expenses incurred by the entity beginning on March 1, 2020, and ending on December 31, 2021, with certain Supplemental SVO Grants covering expenses through June 30, 2022. Permitted expenses include mortgage principal and interest, rent, utilities, worker protection, payroll, and other ordinary business expenses. Any unused SVO Grant funds must be returned to the SBA. (§ 324(d)). To facilitate SBA oversight of the program, SVO Grant recipients must retain employment records for four years and other records for three years (§ 324(e)).

EIDL Emergency Grants

The Act provides for Additional EIDL Emergency Grants:

To any entity (covered entity):
- that is eligible for an EIDL Loan and applied for the EIDL Loan between January 31, 2020, and December 31, 2021;
- that is in a low-income community (as defined in Section 45D(e) of the Internal Revenue Code);
- that employs not more than 300 persons; and
- whose gross receipts during an eight-week period between March 2, 2020, and December 31, 2021, declined by 30% or more relative to a comparable eight-week period immediately before March 2, 2020, or during 2019.
(§ 331(a)(2).)
Equal to $10,000 less the amount of any EIDL Emergency Grant issued before the enactment of the Act previously received by the covered entity (§§ 331(b)(1) and (2)(A)).
A covered entity is entitled to an Additional EIDL Emergency Grant even if it:
- was approved for or accepted the SBA's offer for an EIDL Loan; or
- received a PPP Loan.
(§ 331(b)(1).)

Under the Act, the SBA must:

Notify each of the following of its eligibility for an Additional EIDL Emergency Grant:
- an entity that received an EIDL Emergency Grant before the enactment of the Act; and
- an entity that before the enactment of the Act applied for an EIDL Loan and did not receive an EIDL Emergency Grant because funding was not available.
(§ 331(f).)
Within 21 days after an entity applies for an Additional EIDL Emergency Grant, verify the entity's eligibility for the Additional EIDL Emergency Grant and:
- provide the entity with the amount to which it is entitled; or
- notify the entity why it is not entitled to the Additional EIDL Emergency Grant.
(§ 331(b)(2)(B).)

The Act appropriates $20 billion for Additional EIDL Emergency Grants through December 31, 2021 (§ 331(h)).

The Act further revises the terms for EIDL Emergency Grants by:

Extending their availability from December 31, 2020, to December 31, 2021 (§ 332(1)).
Allowing the SBA to use information from the Treasury to confirm an applicant's eligibility for an EIDL Emergency Grant (§ 332(2)).
Instead of requiring the SBA to provide requested funds to an applicant within three days of its application, giving the SBA 21 days to:
- verify an entity's eligibility; and
- either provide the amount requested or notify the entity that it is not entitled to the EIDL Emergency Grant.
(§ 332(3)(A).)
Increasing from $20 billion to $40 billion the amount appropriated for EIDL Emergency Grants (§ 332(3)(B)).
Repealing the reduction of the amount of the forgiveness of a PPP Loan received by an applicant who receives an EIDL Emergency Grant (§ 333).

The Act did not change the eligibility requirements for EIDL Emergency Grants, including:

Availability to entities that do not employ more than 500 employees (rather than 300 employees for Additional EIDL Emergency Grants).
No requirement that the recipient of the EIDL Emergency Grant be in a low-income community as is the case for Additional EIDL Emergency Grants.

For information on the initial EIDL, see CARES Act: Stimulus for Small Businesses Under the SBA Checklist.

Other 7(a) Loans

For other 7(a) Loans, the Act:

Until September 30, 2021, increases the SBA's guarantee percentage from 75% or 85% (depending on loan size) to 90% (regardless of loan size) (§ 326(a)).
For loans with an accelerated SBA turnaround review time (Express Loans):
- on October 1, 2021, reduces the maximum loan amount from $1 million to $500,000 (§ 326(b)(1)); and
- until September 30, 2021, increases from 50% to 75% the guaranty rate on Express Loans up to $350,000 (§ 326(b)(2)).
Until September 30, 2021, directs the SBA to not collect or to reduce the annual fee and the guaranty fee for each SBA guaranteed loan with an application that is pending or approved on or after enactment of the Act (§ 327(a)).

For information on Other 7(a) Loans, see Practice Note, Small Business Administration (SBA) 7(a) Loans.

504 Loans

For 504 Loans, the Act:

Until September 30, 2021, requires for each project or loan guaranteed by the SBA with an application that is pending on or after enactment of the Act:
- the SBA to collect no participation fee under Section 503(d)(2) of the Small Business Investment Act (15 U.S.C. § 697(d)(2)); and
- each development company that makes a 504 Loan to collect no processing fee under 13 C.F.R. § 120.971(a)(1).
(§ 327(b)(1).)
Authorizes the SBA to reimburse each development company that does not collect a processing fee. The amount of the reimbursement is up to 1.5% of the net debenture proceeds for which the development company did not collect the processing fee. (§ 327(b)(2).)
Increases the amount of any debt incurred for the expansion of a small business that may be refinanced from 50% to 100% (§§ 328(a)(2)(A) and (B)).
For a refinancing of a commercial loan that was incurred at least six months before the application for a 504 Loan, finances the acquisition of tangible property, and is secured by tangible property (qualified debt) and does not involve the expansion of a small business (non-expansion refinancing):
- imposes conditions for non-expansion refinancing;
- permits the SBA to provide financing for the payment of business expenses to a borrower that receives financing that includes non-expansion refinancing;
- limits the maximum amount of financing or refinancing to a borrower that does not meet the job creation goals under Section 501(d) or (e) of the Small Business Investment Act (15 U.S.C. § 695(d) or (e)) to $75,000 multiplied by the number of the borrower's employees; and
- limits the refinancing and financing to $7.5 billion in the aggregate in any fiscal year.
(§ 328(a)(2)(B).)
Until September 30, 2023, permits a development company that is accredited under Section 507(b) of the Small Business Investment Act (15 U.S.C. § 697d(b)) to:
- approve, authorize, close, and service loans funded with the proceeds of a debenture issued by the development company; and
- authorize the guarantee of the debenture.
However:
- the loan must be $500,000 or less and cannot be made to a borrower in an industry with a high rate of default; and
- any guarantee of a debenture is subject to the SBA's final approval, although the SBA cannot review decisions involving creditworthiness, loan closing, or compliance with legal requirements imposed by law or regulation.
(§ 328(b).)
For one year after enactment of the Act, permits a development company to allow the refinancing of a senior loan on an existing project that, when added to the outstanding balance of a 504 Loan made by the development company, does not exceed 90% of the total loan to value. The proceeds of the refinancing may be used for business operating expenses. (§ 328(b).)

For information on 504 Loans, see Practice Note, Small Business Administration (SBA) 504 Loans.

Microloans

For Microloans, the Act:

Reduces the maximum loan amount that the SBA can make to one lender (Microlender) after its first year of participation in the program to $4.5 million through September 30, 2021, and $3 million thereafter (§§ 329(a)(1)(A)(ii) and 329(a)(2)(B)).
Caps at $10 million until September 30, 2021, and $7 million starting October 1, 2021, the maximum aggregate amount of loans made by the SBA to any Microlender (§§ 329(a)(1)(A)(i) and 329(a)(2)(A)).
Expands the availability of grants for marketing, management, and technical assistance to Microloan borrowers (MM&T Assistance Grants) that the SBA can make to Microlenders (§§ 329(a)(1)(B) and (D)).
Until September 30, 2021, waives:
- as a condition of a Microlender's eligibility to receive certain MM&T Assistance Grants, the requirement that the Microlender contribute non-federal funds (§ 329(b)(1)); and
- the limitation on the portion of MM&T Assistance Grants a Microlender may expend (§ 329(b)(2)).
Limits the duration of any Microloan to eight years (or seven years starting October 1, 2021) (§ 329(b)(2)).
In each of fiscal years 2021 through 2025, authorizes the SBA to make:
- technical assistance grants equal to $80 million; and
- loans to Microlenders equal to $110 million.
(§ 329(c).)
In fiscal year 2021, appropriates:
- $50 million for technical assistance grants; and
- $7 million for loans to Microlenders.
(§ 329(d).)

For information on Microloans, see Practice Note, Small Business Administration (SBA) Microloans.

Termination of Federal Reserve Lending Facilities and Lending Authority Established Under CARES Act

The Act rescinds the unobligated portion of the $454 billion of CARES Act funds provided to the Treasury to fund lending and liquidity facilities established by the Federal Reserve (§ 1003(a)(1)), and it terminates the authority of the Federal Reserve to make any further loans or purchase any additional loan participations through the Federal Reserve lending and liquidity facilities established pursuant to the CARES Act (§ 1005).

This follows the November 2020 decision of Treasury Secretary (Secretary) Steven Mnuchin not to extend beyond December 31, 2020, most of the emergency lending programs established by the Federal Reserve under the CARES Act with Treasury funding. In a November 19, 2020, letter to Federal Reserve chairman Jerome Powell, the Secretary asked the Federal Reserve to return all unused funds to the Treasury.

The effect of these provisions of the Act is to confirm Secretary Mnuchin's action and prevent the Federal Reserve from extending further credit under all these facilities except the Term Loan Asset-Backed Securities Facility (TALF). This will terminate any further activity under:

The Primary Market Corporate Credit Facility (PMCCF), which supports credit to employers through new bond and loan issuances (see Primary Market Corporate Credit Facility (PMCCF) Summary).
The Secondary Market Corporate Credit Facility (SMCCF), which supports credit to employers by providing liquidity to the market for outstanding corporate bonds (see Secondary Market Corporate Credit Facility (SMCCF) Summary).
The Municipal Liquidity Facility (MLF), which assists state and local governments managing cash flow pressures by purchasing their short-term notes (see Municipal Liquidity Facility (MLF) Summary Checklist).
The liquidity facilities for small businesses and nonprofit organizations established under the Main Street Lending Program, consisting of:
- the Main Street New Loan Facility (MSNLF) (see Main Street New Loan Facility (MSNLF) Summary Checklist);
- the Main Street Priority Loan Facility (MSPLF) (see Main Street Priority Loan Facility (MSPLF) Summary Checklist);
- the Main Street Expanded Loan Facility (MSELF) (see Main Street Expanded Loan Facility (MSELF) Summary Checklist);
- the Nonprofit Organization New Loan Facility (NONLF) (see Nonprofit Organization New Loan Facility (NONLF) Summary Checklist); and
- the Nonprofit Organization Expanded Loan Facility (NOELF) (see Nonprofit Organization Expanded Loan Facility (NOELF) Summary Checklist).
However, the Act allows the Federal Reserve to continue purchasing loan participations under the Main Street Lending Program until January 8, 2021, extending the prior deadline of December 31, 2020.

An earlier draft of the Act would have prevented the Federal Reserve, going forward, from establishing any facility similar to those terminated, but the final language of the Act only prohibits any program or facility that is "the same" as these.

Practical Implications

The Act's Additional Coronavirus Response and Relief provisions will continue to provide much needed economic relief to small businesses which have been struggling to keep their doors open, staff employed, and financial obligations met due to the impact of the COVID-19 pandemic. While the termination of certain Federal Reserve programs may not come at a good time for some businesses, there is renewed relief for small businesses and certain industries that are in need of further assistance.

For a continuously updated collection of resources addressing COVID-19, see:

Congress Passes and President Trump Signs Year-End Appropriations Bill with Key Small Business and Other Lending and Liquidity Benefits | Practical Law