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For New Jersey businesses struggling under the weight of the COVID-19 pandemic, Congress recently provided relief in the form of “second draw” loans under the Paycheck Protection Program (“PPP”). In March 2020, Congress passed the CARES Act which created the PPP to help ameliorate the economic effect on small businesses of the COVID-19 pandemic. The PPP expired in August 2020, but, now, a new round of PPP lending has been approved. Some New Jersey businesses are eligible even if they obtained a PPP loan in the “first round.”

Experienced and proven New Jersey business attorneys can help with the application process or with other legal aspects of the program. Under the PPP, businesses can retain agents, like accountants and business attorneys, to provide application assistance. With lender approval and compliance with applicable Small Business Administration regulations, agents are entitled to be paid agents fees by the lender. This provision of the PPP helps speed the loan application process.

In general, a business is eligible for a “second draw” PPP loan if:

  • The borrower has no more than 300 employees — this is a lower threshold; the original PPP capped employees at 500; certain exceptions apply for businesses in the hotel and food service industries
  • The borrower demonstrates at least a 25% reduction in gross receipt compared to the same quarter in the previous year — note that proof of revenue loss may also be required for loan forgiveness
  • The borrower certifies that the PPP loans is needed because of “economic uncertainty” and to support ongoing business operations

If the PPP loan is used for certain qualified expenses, the loan is eligible for full or partial forgiveness. Generally, the qualified expenses include

  • Payroll costs including various types of insurance payments
  • Mortgage interest, interest on many other debts and/or rent
  • Utilities
  • Operation expenditures — like product or service delivery, sales and billing expenses, inventory and tracking, etc.
  • Property damage not otherwise covered by insurance
  • Supplier payments
  • Costs related to COVID-19 worker protection costs such as the cost of protective equipment, health screening, physical space reorganization and more

In addition, the expenses paid with the PPP proceeds are tax deductible in the normal manner, thus providing a double benefit. Businesses must seek advice from tax professionals for this aspect of the PPP.

Certain eligibility exceptions still apply. For example, businesses that are already in bankruptcy and certain types of business, like “gentlemen’s clubs,” are not eligible. Congress added some additional exclusions such as businesses organized under the laws of China or Hong Kong or more than 20% owned by businesses in China or Hong Kong or that have significant operations in China or Hong Kong

Loan amounts are limited to roughly two and half times the business’ average monthly 2019 payroll and cannot exceed $10 million. For restaurant and hospitality businesses, the loan amount can be three and half times the average monthly payroll. A business with a “first-round” PPP loan can apply for an amount that is the difference between what it previously received and the amount for which it now qualifies.

Contact an Experienced New Jersey Business Lawyer Today

For more information or if you have legal questions about your PPP loan application or other aspects of the PPP, contact the experienced New Jersey business attorneys at Silverberg Law, LLC. We have 30 years of experience helping business clients in New Jersey and New York. We provide dedicated and hands on representation in all matters we handle. Use our “Contact Us” link or call (201) 252-7000 to schedule a free consultation.