The Consolidated Appropriations Act, 2021 (CAA), signed into law by President Trump on Dec. 27, 2020, includes new funding for the Paycheck Protection Program (PPP), which expired Aug. 8, 2020. The PPP was created by the CARES Act and originally included $349 billion in funding. That money was gone within two weeks, resulting in a second round of funding totaling $320 billion. After Round 2 loans ended in August, there has been no additional funding until now.

Key Takeaways

  • A third round of Paycheck Protection Program (PPP) loans was authorized by the passage of H.R. 133: Consolidated Appropriations Act, 2021 into law on Dec. 27, 2020.
  • First-Draw PPP loans are available for the lesser of $10 million or 2.5 times your average monthly payroll.
  • Second-Draw loans up to $2 million are available for businesses that have used funds in their Round 1 or Round 2 loan.
  • 100% of your loan could be forgiven if you follow guidelines.
  • Passage of the PPP Flexibility Act of 2020 relaxed many PPP loan guidelines.
  • Passage of the Consolidated Appropriations Act provided additional funding and even more relaxed guidelines.
  • Changes made by the Biden administration provide targeted assistance to very small businesses and previously underserved individuals.
  • Passage of the PPP Extension Act on March 30, 2021, provided further guidance and deadline extension.
  • You can apply for both a PPP and EIDL loan.
  • Check eligibility before you apply.
  • You can apply through any SBA-approved 7(a) lender.

Feb. 24, 2021

Starting date for a 14-day period, ordered by the Biden administration, during which only businesses with fewer than 20 employees can apply for a PPP loan.

Round 3 funding of $284 billion expands on the original PPP goals of providing loans to businesses for payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. The table below outlines all three rounds of PPP loan funding to date.

Round Legislation Funding Expiration
1 H.R. 748 - CARES Act $349 billion Apr. 16, 2020
2 H.R. 266 - PPP and Health Care Enhancement Act $310 billion Aug. 8, 2020
3 H.R. 133 - Consolidated Appropriations Act, 2021 $284 billion Mar. 31, 2021*
  * Or until funds are exhausted    

Sources: H.R. 748, H.R. 266, H.R. 133

Changes to the PPP Program Announced by the Biden Administration

The Whitehouse announced, Feb. 22, 2021, five changes to the Paycheck Protection Program, one with a set term of two weeks, the other four effective until at least the end of March 2021. These changes are designed to make PPP funds available to very small businesses and others who have been inadequately helped by the program, according to the Biden administration.

  • Beginning Wed., Feb. 24, 2021 through Tue. March 9, 2021, businesses with fewer than 20 employees will be the only ones permitted to apply for PPP funding.
  • The formula used to calculate PPP loans will be revised to provide more funding for sole proprietors, independent contractors, and self-employed individuals. An additional $1 billion will be allocated for these individuals in low-and moderate-income (LMI) areas.
  • Eligibility for PPP funding is now extended to small business owners with non-fraud related felonies as long as the applicant is not incarcerated at the time of the application.
  • Business owners with delinquent federal student loans will now be eligible for a PPP loan.
  • Non-citizens who are lawful U.S. residents will also be eligible and allowed to use their Individual Taxpayer Identification Numbers (ITINs) to apply.

First-Draw vs. Second-Draw Loans

The CAA provides for two types of Round 3 PPP loans, initial or first-draw loans up to $10 million, for entities that have never received a PPP loan, and second-draw loans up to $2 million for entities that have.

Following guidance from the U.S. Small Business Administration (SBA) and Treasury Department, community financial institutions including Community Development Financial Institutions (CDFIs) began making first-draw PPP loans on Mon., Jan. 11, and second-draw loans on Wed., Jan. 13. Small lenders with less than $1 billion in assets were slated to begin making both first- and second-draw loans on Fri., Jan. 15, and all approved PPP lenders were able to begin lending on Tues., Jan. 19, 2021. 

Sources: H.R. 748, H.R. 266, and H.R. 133.

PPP Round 3 General Terms and Conditions

As a refresher, both first- and second-draw PPP loans are subject (but not limited) to the same general terms and conditions as original PPP loans under the CARES Act, including:

  • Loans are 100% guaranteed by the government.
  • No collateral is required.
  • No personal guarantees are required.
  • The interest rate for all loans is 1% and maturity is five years.

PPP Round 3 Eligibile Entities

While there are key differences between first- and second-draw PPP loans, the list of types of eligible entities is the same.

  • Small businesses with 500 or fewer employees (300 or fewer for second-draw loans);
  • Businesses categorized under "Accommodation or Food Services," such as restaurants and hotels that have 500 or fewer employees per location (300 or fewer for second draw loans);
  • Independently owned franchises;
  • Self-employed workers, independent contractors, gig workers, and sole proprietors;
  • 501(c)(3) businesses or tax-exempt nonprofit organizations; tax-exempt 501(c)(19) veterans organizations; 31(b)(2)(C) tribal business concerns;
  • Housing cooperatives; eligible section 501(c)(6) organizations, or eligible destination marketing organizations with 300 or fewer employees; and
  • News organizations that are majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS 511110 or 5151 with 500 or fewer employees.
  • In addition, your business must have been in operation on Feb. 15, 2020.

Additional Second-Draw Requirements

Second-draw PPP loans have some restrictions that first-draw loans do not. You cannot receive a second-draw loan of up to $2 million unless:

  • You have received and used (or will use) all proceeds from a first-draw loan by the time you receive (or expect to receive) second-draw loan proceeds.
  • You have 300 or fewer employees.
  • You can demonstrate that you experienced a loss of at least 25% of gross receipts in any quarter during 2020 compared to the same quarter in 2019.
  • You spend all proceeds from your first-draw loan on eligible expenses.

Second-Draw Borrower Exclusions

Round 3 guidelines also exclude you from a second-draw loan if your company:

  • Is permanently closed.
  • Is ineligible under existing SBA regulations;
  • Is primarily engaged in lobbying or other political activities;
  • Is owned by an entity created in, or with significant operations in, the People's Republic of China or the Special Administrative Region of Hong Kong;
  • Includes a board member who is a resident of the People's Republic of China;
  • Is a recipient of a shuttered venue operator grant under Section 24 of the Act.

Required Certifications for PPP Loans

You must certify that current economic uncertainty makes this loan request necessary to support ongoing operations, that funds will be used as required including no more than 40% for non-payroll costs. This requirement applies to both first- and second-draw PPP loans.

Special New Set-Aside Funding

Round 3 includes special set-aside funding for specific groups of first- and second-draw borrowers. 

  • $15 billion for lending by community financial institutions;
  • $15 billion for lending by Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion;
  • $35 billion for new first-draw PPP borrowers; and
  • $15 billion and $25 billion for first-draw and second-draw PPP loans for borrowers with 10 employees or fewer, or for loans of less than $250,000 to borrowers in low-or moderate-income neighborhoods.

Where to Apply for a Round 3 PPP Loan

As noted above, applications for Round 3 first draw PPP loans from approved community financial institutions started on Mon., Jan. 11, 2021. Second draw applications began on Wed., Jan. 13, followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021.

All SBA 7(a) lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021. Check with your local lender and monitor the SBA PPP program website for updates.

There will be scammers. Just as with the first two rounds, if you are a small business owner you can anticipate hearing from scammers promising to help you obtain a PPP loan. Only go through approved lenders or the SBA.

Round 3 PPP Application Deadline

The Consolidated Appropriations Act, 2021 (CAA) extended the Paycheck Protection Program (PPP) through March 31, 2021, or until funds are depleted. The amount of funds made available was $284 billion. Maximum loans of $10 million will be available to first-draw borrowers and loans up to $2 million are being offered to second-draw, small business owners.

On March 30, 2021, President Biden signed the Paycheck Protection Program Extension Act which gave applicants until May 31, 2021, to apply for a PPP loan, extended the covered period to June 30, 2021, and gave lenders until that date to process loans.

How to Apply for a Round 3 PPP Loan

New first- and second-draw loans will follow a pattern similar to that followed with previous PPP loans. Start by downloading and filling out a loan application from the SBA website. The first-draw application is five pages long, including instructions and the second-draw application is six pages, including instructions.

Choose Your Own Covered Period

Round 1 and Round 2 PPP loans stipulated that the time during which you had to use your loan proceeds (covered period) would be an eight-week period beginning on the date you received your loan proceeds. That was later expanded to 24 weeks.

Round 3 allows you to choose any length period between eight weeks and 24 weeks, giving you more control over how to handle reductions in your workforce, if needed, once PPP funds are depleted.

Use of Round 3 PPP Funds

The CAA expands the types of expenses for which you can use Round 3 PPP funds. This also applies to existing PPP loan funds (unless you have already obtained forgiveness). In addition to payroll, rent, covered mortgage interest, and utilities, the Paycheck Protection Program will now let you use loan proceeds for:

60%

The percentage of both first- and second-draw PPP loans that must be used for payroll expenses.

  • Certain operations expenses including business software; business-related cloud computing services; product or service delivery; payroll processing, payment, and tracking costs; HR and billing functions; tracking of supplies, inventory, records, and expenses
  • Covered property damage costs including costs related to damage or vandalism caused by looting or public disturbances in 2020 that were not covered by insurance or other compensation
  • Listed supplier costs including payments to a supplier of goods that are essential to operations and made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
  • Covered worker protection expenses including operating or capital expenditures required to comply with requirements or guidance issued by the CDC, HHS, OSHA, or any state or local government during the period beginning March 1, 2020, and ending on the date when the national emergency expires

Tax Treatment of Round 3 PPP Loans

Round 3 PPP loans will not be included in your company's taxable income. If your loan is forgiven, expenses paid with the proceeds of your loan will be tax-deductible. Further, this rule applies to new, existing, and previous PPP loans. In addition, any income tax basis increase that results from your PPP loan will remain even if the PPP loan is eventually forgiven.