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Legal Alert: Small Employers Get Better Access and Higher Loan Amounts with New 2021 Paycheck Protection Program (PPP) Rules

Authored By: D.C. Bar Pro Bono Center

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Legal Alert

The Paycheck Protection Program (PPP) continues to offer small businesses and nonprofits low-interest, potentially forgivable loans to help deal with the economic effects of the COVID-19 pandemic. PPP funds will be available at least through March 31, 2021 for both first- and second-time applicants, and may be further extended by Congress’ next coronavirus relief bill.

However, small employers and self-employed individuals—including those who had trouble accessing PPP funds in the past—should act quickly to take advantage of new processing and eligibility rules that make the program more advantageous to small entities.

These new changes to the PPP program include:

Exclusive Application Period for Small Entities with Under 20 Employees

Through March 9 A new Biden administration rule requires lenders to prioritize PPP applications from small businesses and nonprofits with under 20 employees or self-employed individuals (e.g. sole proprietorships and independent contractors) between February 24 and 5pm on Tuesday, March 9, 2021. The rule applies to both first-time PPP applicants (“first draw” applicants) and applicants who already received a PPP loan (“second draw” applicants). Historically, larger organizations were able to obtain a majority of PPP funds, leaving lenders unavailable to process applications from smaller entities. This new rule should make it easier for small employers to find lenders and access loans.

Bigger Loans for Self-Employed Individuals

The maximum PPP loan amount for self-employed individuals will now be based on their gross income rather than net profits, which will significantly increase the amount that most self-employed entities can borrow.

Expanded Eligibility Rules

New Biden administration rules also allow individuals who have delinquent student loans, or who have defaulted on their student loans, to access the program, along with individuals with prior non-fraud felony convictions. Finally, the administration clarified that non-citizen small business owners can access the program by using their Individual Taxpayer Identification Number. These changes join other recent updates to the program benefitting small entities including:

(1) creating a simplified loan forgiveness application for loans up to $150,000;

(2) allowing Economic Injury Disaster Loan (“EIDL”) advances to no longer count against a borrower’s PPP forgiveness amount; and

(3) reserving a significant amount of PPP funding for first-time applicants, small employers, employers operating in low or moderate-income areas, and loans provided by community financial institutions (CDFIs) and minority depository institutions (MDIs), even after the March 9 exclusivity period.

2021 PPP Program: Background Information

• The PPP program was reauthorized in December 2020 to provide an additional $284 billion in forgivable loans to small businesses through March 31, 2021;

• Businesses and nonprofits that previously received a PPP loan can apply for a second loan if they demonstrate at least a 25 percent reduction in gross receipts between two comparable quarters in 2019 and 2020;

• Applicants can apply for loans valued at 2.5 times their average monthly payroll expenses (or 3.5 times for hotels and restaurants), maxing out at $10 million for first-time applicants and $2 million for second-time applicants;

• PPP funds can be used to cover payroll and benefits costs, along with a limited range of non-payroll expenses including rent payments, mortgage interest payments, utility payments, certain essential business supplies, certain operating/overhead expenses, uninsured property damage costs caused by looting or vandalism during 2020, and COVID-related worker protection costs;

• PPP loans are fully forgivable if, following receipt, employees: (1) maintain their workforce and compensation levels (only applicable to employers receiving over $50,000 in PPP and subject to other fact-specific exceptions); (2) limit PPP spending to eligible expenses; and (3) spend at least 60 percent of their loan on payroll costs and benefits.

• After the small applicant exclusivity period expires on March 9, first-draw PPP loans will be available to businesses with fewer than 500 employees and second-draw loans available to businesses with under 300 employees.

• SBA has created a Lender Match service to help applicants find available local lenders.


Additional information for nonprofits and small businesses impacted by the coronavirus pandemic is at the D.C. Bar Pro Bono Center’s Coronavirus Legal Resources section at www.probono.center/NPSB.

If you have questions about these programs or other legal issues, feel free to contact us at cedinfo@dcbar.org.

This communication is provided by the D.C. Bar Pro Bono Center solely for informational purposes, without any representation that it is accurate or complete. It does not constitute legal advice and should not be construed as such. It does not create an attorney-client relationship between the recipient and any other person, or an offer to create such a relationship. This communication contains information that is based, in whole or in part, on the laws of the District of Columbia and is current as of the date it is written. However, laws vary from state to state and may change from time to time. As a result, the information may not be appropriate for anyone operating outside the District of Columbia and may no longer be timely. Consult an attorney if you have questions regarding the contents of this communication.

Last Review and Update: Mar 03, 2021
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