The SBA’s Paycheck Protection Program Returns for 2021

On December 27, 2020, President Trump signed into law the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act” (the Economic Aid Act) as part of a larger legislative package funding the federal government through September 30, 2021. The Economic Aid Act includes a provision that reopens the Small Business Administration’s (SBA’s) Paycheck Protection Program (PPP), which provides forgivable loans to businesses to keep workers employed during the coronavirus (COVID-19) crisis.

The PPP was created March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The SBA’s authority to issue PPP loans, however, ended August 8, 2020. The Economic Aid Act extends the SBA’s authority to make PPP loans through March 31, 2021. The new law also revised certain PPP requirements and authorized certain eligible borrowers who previously received a PPP loan to apply for a Second Draw PPP. More details on the extended program are set forth below.

Program period

The Economic Aid Act extends the covered period of PPP loans for both first-time users and second-draw loans through March 31, 2021. PPP borrowers can elect to have their loan cover between eight and 24 weeks of eligible expenses after receiving the loan, to best meet their business needs.


Eligibility requirements for the PPP differ depending on whether the borrower is a first-time user of the program or is seeking a second-draw PPP loan. For second-draw loans, a borrower is generally eligible if they:

  • are an eligible small entity with no more than 300 employees;
  • can demonstrate at least a 25% reduction in gross receipts in Q1, Q2, Q3 or Q4 of 2020 compared to the same quarter in 2019, or a 25% reduction in annual receipts in 2020 compared to 2019; and
  • have used or will use the full amount of the initial PPP loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP Loan.

For first-time borrowers of the program, eligible small entities with 500 or fewer employees can apply.

Eligible small entities for both first-draw and second-draw loans include nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships and independent contractors, in addition to small businesses that meet the SBA’s standards, as long as they have been in business since February 15, 2020.

Loan amount

Under the PPP, businesses applying for first-draw PPP loans are eligible to receive up to 2.5 times their average monthly payroll costs up to $10 million. Businesses applying for a second-draw loan are eligible to receive up to 2.5 times their average monthly 2019 or 2020 payroll costs up to $2 million. Eligible payroll costs consist of compensation to employees in the form of salary, wages, commissions, tips or similar compensation; employee benefits, including health-insurance premiums and retirement benefits; and payment of state and local payroll taxes. Keep in mind that compensation of an individual employee in excess of $100,000 is expressly excluded from the definition of payroll costs.

Eligible uses of proceeds from a PPP loan

In addition to payroll costs, the proceeds from a PPP loan can be used to cover mortgage-interest payments, rent payments, utility payments and interest payments on any other debt obligations, as long as these payments were incurred before February 15, 2020. The Economic Aid Act added additional expenditures that could be covered by PPP proceeds such as personal protective equipment, supplier costs, payments for software, cloud computing and other human-resources and accounting needs, as well as costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.


Both first-draw and second-draw PPP loans qualify for full forgiveness if used during the eight- to 24-week period from the date when the loan is deposited; employee and compensation levels are maintained; at least 60% of the proceeds are spent on payroll costs; and any other proceeds of the loan are spent on eligible expenses as listed above. The Economic Aid Act also simplifies the loan-forgiveness application process for smaller loans that amount to as much as $150,000, and it provides the Small Business Administration with greater authority to audit and review forgiven loans.

Tax-deductibility issues

Finally, the Economic Aid Act makes clear that borrowers may deduct expenses paid out of forgiven PPP loans and clarifies that PPP-loan forgiveness is not taxable income. Up until passage of the Economic Aid Act, the IRS maintained the position that PPP recipients cannot claim a deduction for expenses funded from forgiven PPP loans, even while a bipartisan group of lawmakers said that such an interpretation ignored Congressional intent. The new legislation clarifies the issue and nullifies the IRS’s guidance.

What’s next?

On January 11, 2021, the SBA reopened the PPP for first-draw loans made by community lenders. On January 14, 2021, the SBA announced it would re-open the PPP loan portal to PPP-eligible lenders with $1 billion or less in assets for first- and second-draw applications on January 15, 2021, and that the portal would fully open on January 19, 2021. Continue to check the SBA’s website on the program, as they will need to release additional guidance.

Basil Thomson is a senior associate at Ulman Public Policy, TCIA’s Washington, D.C.-based advocacy and lobbying partner.

Want to know more? Click here to email Aiden O’Brien, TCIA’s advocacy & standards manager, to continue the conversation.

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