What’s New for PPP Loans under the CAA

What’s New for PPP Loans under the CAA

January 7, 2021
By Tonneson
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On December 27, President Trump signed the Consolidated Appropriations Act (CAA) which was in part enacted to further assist small businesses to survive the coronavirus pandemic economic downturn. Our previous email provided an overview of the new provisions for small businesses. This communication focuses on the changes, updates, and additions that the CAA has made to the Paycheck Protection Program (PPP).

Changes to original PPP loans that also apply to PPP2 loans:

One of the most exciting changes to the program is the overturning of the Internal Revenue Service’s (IRS) ruling that expenses paid with PPP proceeds are not deductible by the borrower. It was always the intention of the CARES ACT to allow deductibility of these expenses. Unfortunately, the law was not written with enough clarity on this issue, leaving it to the IRS to interpret the deductibility of these expenses under existing tax law. The CAA finally brings clarity to this important provision and overturns the IRS’ determination of the non-deductibility of the expenses under IRS Notice 2020-32 and 2020-27. The IRS has acquiesced and issued Revenue Ruling 2021-02, reflecting these changes to the law, promulgated by the CAA.

The CAA also revises the PPP to allow borrowers to spend loan proceeds on four new categories of expenses:

  1. Covered operations expenditures*
  2. Covered property damage costs*
  3. Covered supplier costs*
  4. Covered worker protection expenditure*

*For a definition of these terms, please see the Appendix at the bottom of this post.

Another change is that the requirement that Economic Injury Disaster Loans (EIDL) advances must reduce the PPP loan has been eliminated.

The CAA also changed the required covered period to begin on the date of the loan origination and to end at any time the borrower selects that is more than eight weeks after the loan origination, but less than 24 weeks after the loan origination.

PPP2 – Second loans for qualified borrowers:

The CAA now allows small businesses in need to borrow from the SBA once again. The CAA appropriates more than $284 billion in Federal funding for a second round of loans to qualified borrowers. A qualified borrower is any small business that:

  1. Has already received a loan under the original PPP program that closed in August, 2020 that:
    a. Has 300 or fewer employees.
    b. Has used or will use the full amount of their first PPP loan, if applicable.
    c. Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
  2. Is a Sec. 501(c)(6) business league, such as a chamber of commerce, visitors’ bureau, etc.
  3. Is a first-time borrower who falls into one of the following categories:
    a. Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
    b. Sole proprietors, independent contractors, and eligible self-employed individuals.
    c. Not-for-profits, including churches.
    d. Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The PPP2 loan terms allow for loans up to $2 million, with a maximum cap of 2.5 times the borrower’s average monthly payroll costs in the year prior to the loan or calendar year, similar to the PPP1. Borrowers with an NAICS code starting with 72 can get up to 3.5 times their average monthly payroll costs. The NAISC code 72 includes hotels and restaurants.

Eligible expenditures for the borrower proceeds have been expanded as noted above but still include the eligible costs under PPP1, such as payroll, rent, covered mortgage interest, and utilities. These costs, along with the extended qualifying costs, are eligible for loan forgiveness as well. To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks (which is the same as PPP1.)

Simplified Forgiveness Application for PPP Loans $150,000 or less:

The CAA also simplifies the forgiveness application for any small business with a loan of $150,000 or less. This streamlined application will be a certification that is one page, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA is required to make this form available within 24 days of the CAA’s enactment. The SBA may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Breaking News:

Today the Small Business Association (SBA) issued two interim rules, IFR- Business Loan Temporary Changes; Paycheck Protection Program as Amended, which outlines the rules for first time borrowers and IFR – Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans, which outlines the rules for businesses that have already received a PPP loan previously. These IFRs are the first wave of guidance from the SBA acknowledging the changes made by the CAA under “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260”.


The term ‘covered operations expenditure’ means a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.

The term ‘covered property damage cost’ means a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.

The term ‘covered supplier cost’ means an expenditure made by an entity to a supplier of goods for the supply of goods that— ‘‘(A) are essential to the operations of the entity at the time at which the expenditure is made; and ‘‘(B) is made pursuant to a contract, order, or purchase order— ‘‘(i) in effect at any time before the covered period with respect to the applicable covered loan; or ‘‘(ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan.

The term ‘covered worker protection expenditure’—‘‘(A) means an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services ,the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the Coronavirus Disease 2019 (COVID–19) expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19;‘‘ (B) may include—(i) the purchase, maintenance, or renovation of assets that create or expand—‘‘(I) a drive-through window facility; (II) an indoor, outdoor, or combined air or air pressure ventilation or filtration system; ‘‘(III) a physical barrier such as a sneeze guard; (IV) an expansion of additional indoor, outdoor, or combined business space; (V) an onsite or offsite health screening capability; or (VI) other assets relating to the compliance with the requirements or guidance described in subparagraph (A), as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor; and (ii) the purchase of—(I) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation; (II) particulate filtering face piece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or (III) other kinds of personal protective equipment, as determined by the Administrator in consultation with the Secretary of Health and Human Services and the Secretary of Labor.