On February 22, 2021, President Biden announced new efforts to refocus federal pandemic assistance by targeting the nation’s smallest businesses through enhanced access to the Paycheck Protection Program (PPP). The White House released a fact sheet providing an overview of the steps being taken to provide further equity and fairness to the forgivable loan program that was created by the CARES Act, on March 27, 2020, and extended by the Consolidated Appropriations Act, 2021, that was enacted on December 27, 2020.
This announcement reflects an effort by the Biden administration to “correct disparities” in how the PPP was administered by the predecessor administration and to get more relief to very small businesses that have been severely hurt by the virus and have not yet been able to receive aid. Because the first round of loans was slow to reach many minority-owned and mom-and-pop businesses, when the PPP reopened with additional funding in January 2021, these small businesses and hard-hit groups were given early access to apply.
The Administration has announced an additional exclusive opportunity for the smallest businesses to access the funds. During a two-week window, starting on February 24, 2021, and ending on March 9, 2021, only those businesses with fewer than 20 employees (the overwhelming majority of U.S. small businesses) can apply for PPP loans. Larger businesses will be blocked from applying during that time period to allow lenders to focus on processing loans for smaller applicants. The program is set to expire on March 31, 2021.
Additional changes to the loan funding formula will make it easier for firms with no employees (sole proprietors, independent contractors, and the self-employed) to qualify for more PPP money. Previously, these applicants did not receive significant funding (or were excluded completely) because the loan amounts were calculated based on the number of employees. The new plan is also carving out $1 billion for businesses without employees in low- and moderate-income areas, which are 70% owned by women and people of color.
The White House announcement also noted that changes will be made to some eligibility rules, effective the first week in March 2021, to make the PPP loans available to additional targeted groups. These revisions include removing a prohibition on lending to a company with at least 20% ownership by a person arrested or convicted for a non-fraud felony in the prior year; eliminating restrictions that had prevented non-citizen legal residents from accessing the aid; and allowing those behind on their federal student loans to seek relief through the program.
The PPP was intended to help keep Americans employed during the economic downturn driven by the pandemic. The program allows small and mid-size businesses employing fewer than 500 workers and suffering a loss of revenue to access federal loans. These PPP loans are forgivable if 60% of the amount received is spent on payroll and the balance on other qualifying expenses. (see links to related posts and webinars below)
When the program was first launched in April 2020, the initial $349 billion ran out in two weeks. An additional $320 billion in funding was added in May 2020, and approximately $130 billion remained unused when the first round closed in August 2020. The latest PPP, which began in January 2021, has already paid out $133.5 billion in loans (about half of the $284 billion allocated by Congress), with an average loan under $74,000.
A further renewal of the program is not included in Biden’s $1.9 trillion “American Rescue Plan,” which is expected to pass Congress in the coming weeks.