Robinson Brog Leinwand Greene Genovese & Gluck, P.C. - New York City Business Litigation Attorneys


The Latest COVID-19 Relief Act and What it Means For Small Businesses

by Zachary M. Seelenfreund

We summarize below the small–business provisions of the Consolidated Appropriations Act (the “Relief Act”) signed into law on December 27, 2020 after receiving almost unanimous U.S. Senate approval and lopsided support in the U.S. House of Representatives December 21, 2020.  The Relief Act is a $1.4 trillion stimulus package aimed at providing relief to various persons and entities including individual citizens, certain industries and small businesses impacted by the COVID-19 coronavirus pandemic and its economic consequences.  The small business portion of the Relief Act is contained in Title II (“Assistance to Individuals, Families, and Businesses”) and Title III (“Continuing The Paycheck Protection Program and Other Small Business Support”), which earmarks $324 in aid for small businesses, including $284 billion to the U.S. Small Business Administration (“SBA”) for first and second Paycheck Protection Program (PPP) forgivable small business loans. The Relief Act provides a continuation of the broad short-term lending availability and loan forgiveness to small businesses who have endured coronavirus-induced economic hardships since March 2020. 

The COVID-19 pandemic’s harm to small businesses has been substantial. In addition to the direct impact of the slowdown caused by the coronavirus, small businesses have been impacted by legislation designed to protect their employees under quarantine, such as required sick pay and job protections.  The Relief Aft is intended to continue funding for the SBA programs put in place under the CARES Act.[1]

I.                   Key Elements of The Relief Act for Small Businesses

a.                  Breaking Down Round Two of The PPP

PPP Eligibility.

            PPP loans are available for first-time qualified borrowers and to businesses that previously received a PPP loan. However, the eligibility requirements for second-time qualified borrowers are slightly stricter under the Relief Act.

            Previous PPP recipients may apply for another loan of up to $2 million if they have 300 or fewer employees, have used or will use the full amount of their initial PPP loan, and can show at least a 25% decline in gross revenue in any 2020 quarter compared with the same quarter in 2019.

            Eligible first-time PPP applicants may receive a forgivable loan if they have 500 or fewer employees and are eligible for other SBA 7(a) loans. Sole proprietors, independent contractors, eligible self-employed individuals, non-profit organizations, and accommodation and food services operations with less than 300 employees at each location may also be eligible for forgivable PPP loans under the Relief Act.


            Under the Cares Act, PPP loans issued prior to June 5, 2020 have a maturity of 2 years and PPP loans issued after June 5, 2020 have a maturity of 5 years, with a 1% interest rate on unforgiven loan sums. The SBA has not yet issued guidance on the term for PPP loans issued under the Relief Act.

Interest Rate and Prepayment Penalties.

            Under the Cares Act, interest rates for loans during the covered period may not exceed 4%. Additionally, there were no prepayment penalties under the Cares Act. Interest rates on the second round of PPP loans remain at 4%.

Waiver of Collateral and Other Requirements.

            Under the Cares Act, PPP borrowers were not required to provide collateral or a personal guarantee, and were not required to meet the “no credit elsewhere” test (i.e., the borrower cannot obtain conventional financing outside the SBA context), as contrasted with the typical 7(a) loan requirements. The SBA has not yet issued guidance concerning any collateral requirements for a PPP loan issued under the Relief Act.

Repayment Deferral.

            PPP loan payments are deferred for the first six months, with the SBA paying principal, interest and any associated fees owed on such deferred loans.

Loan Maximums.

            Subject to a $2 million cap, the maximum PPP loan amount under the Relief Act will be 2.5 times average monthly payroll costs for most businesses and 3.5 times average monthly payroll costs for accommodation and restaurant businesses.

For loan amount qualification purposes, payroll costs are deemed to include:

  • Salaries, wages and similar compensation to employees, together with cash tips;
  • Paid vacation, parental, sick and medical leave;
  • Severance payments;
  • Group health care benefit payments (including insurance premiums);
  • Retirement benefit payments;
  • State and local payroll tax payments; and
  • Compensation to sole proprietors or independent contractors (including commission-based compensation), capped at $100,000 in one year.

Payroll costs exclude:

  • Individual employee compensation above an annual $100,000 salary;
  • Qualified sick and family leave wages for which credit is allowed under FFCRA Sections 7001 or 7003;
  • Federal taxes imposed under Internal Revenue Code chapters 21, 22 and 24; and
  • Compensation to employees whose principal place of residence is outside the U.S.

Use of Loan Proceeds.

            Borrowers must spend at least 60% of PPP funds on payroll over a covered period of either 8 or 24 weeks to be eligible for full loan forgiveness under the Cares Act and the Relief Act.

            PPP funds are eligible to be used for the following purposes:

  • Payroll costs (as described in “Loan Maximums” above), including commissions or similar compensation payments;
  • Continuing group health care benefits, including paid sick, medical and family leave, and insurance premiums;
  • Rent payments;
  • Mortgage interest payments (but not for payment / prepayment of principal);
  • Utility payments;
  • Interest payments on other debt obligations incurred before the covered period;
  • Standard Section 7(a) loan permitted purposes, including working capital; expansion/renovation; new construction; purchase of land or buildings; purchase of equipment, fixtures; lease-hold improvements; refinancing debt for compelling reasons; seasonal line of credit inventory; and starting a business;
  • Worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines;
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations; and
  • Covered operating costs such as software and cloud computing services and accounting needs.

Loan Forgiveness.

            Under the Relief Act, PPP borrowers are eligible for loan forgiveness up to the amount of the loan principal as to monies spent during the 8 week or 24 week covered period (as specified by the borrower) on (a) payroll costs, and (b) other covered expenditures (listed above).

            The loan forgiveness provisions also indicate that:

  • Forgiven amounts will not create cancellation of indebtedness income and will not be taxable as gross income;
  • Employers seeking forgiveness will need to certify as to accurate documentation and uses of proceeds and to provide their lenders with relevant backup calculations and documentation; and
  • Borrowers may expect forgiveness decisions within 60 days post-request, with reimbursement within 90 days thereafter.

            Borrowers should consider placing PPP loans subject to possible forgiveness into a separate account until a loan forgiveness determination is made.

Tax Deductibility for PPP Expenses.

            The Relief Act specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted in connection with the initial round of PPP loans.

Other PPP Loan Aspects.

  • Under the Cares Act, eligible borrowers were required to make a good faith certification that they will use PPP funds for permitted uses, are not receiving other SBA funds for the same purposes and that they have been economically affected by the COVID-19 pandemic. Eligible borrowers who seek a second round of funding or an initial PPP loan under the Relief Act should be prepared to make a similar certification.
  • Borrower and lender 7(a) loan fees are waived.
  • Imposes personal liability (and possible criminal charges) on persons using PPP funds for unauthorized uses.
  • The Relief Act allocates $47 billion in grant funding for shuttered arts and entertainment businesses and businesses in low-income and minority communities.
  • Simplified forgiveness application process for PPP loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length describing the number of employees the borrower was able to retain because of the loan, the estimated total amount spent on payroll costs, and the total loan amount. The SBA is required to disseminate the simplified application form within 24 days of the enactment of the Relief Act.
  • Government guarantees of PPP loans remain the same as under the Cares Act—75% for loan exceeding $150,000 after December 31, 2020.

II.                The Employee Retention Credit Program

Expansion of Payroll Tax Credit Eligibility.

The Relief Act extends the Cares Act’s employee retention tax credit (“ERTC”) through June 30, 2021. It also expands the ERTC While most of the eligibility requirements under the Cares Act remain in place, the Relief Act has increases the percentage of the credit relative to the amount of qualified wages from 50% to 70%, expands eligibility for ERTCs by reducing the minimum reduction in gross receipts test from 50% to 20%, increases qualified wages from $10,000 per employee to $10,000 per quarter per employee, and increases the 100-employee maximum for determining qualified wages to 500 employees. A business should consider whether it prefers an ERTC or a PPP loan, as part of its loan planning process.

The Relief Act’s expansions of the ERTC program include:

  • Increasing the credit rate from 50% to 70% of qualified wages;
  • Increasing the limit on per employee qualified wages from $10,000 for the year to $10,000 per each quarter;
  • Increasing the number of employees counted when determining the qualified wage base from 100 employees to 500 employees;
  • Increasing eligibility by reducing the gross receipts decline test from 50% to 20%;
  • Permitting employers to use prior-quarter gross receipts to determine eligibility; and
  • Permitting PPP recipients to qualify for ERTCs with respect to wages that are not paid with forgiven PPP funds

Payroll Tax Deferral.

The Relief Act extends the deferral deadline through December 31, 2021.

While each business needs to weigh the costs and benefits of a PPP versus a payroll tax deferral, a PPP subject to loan forgiveness is likely to be more favorable than a payroll tax deferral.

III.             Continued Review and Updates

We continue to monitor guidance relating to the Relief Act and will review regulations expected to be issued in January 2021 fleshing out the technicalities and procedures relating to the latest injection of financial relief for small businesses.  We will be issuing additional analysis and/or updating this memorandum as appropriate in upcoming weeks. 

Consult Your Advisor

If you think that your business might qualify for one of the loans described above, we recommend starting the application process as soon as practicable.   If you think that your business might qualify for some of the other relief described above, our attorneys are available to discuss these matters with you.

Robinson Brog is working with its clients to address various coronavirus-related matters in the litigation, bankruptcy, estate planning, tax and corporate/commercial arenas, including contract analysis and revision such as force majeure-related provisions.  For advice regarding the impact of the coronavirus pandemic on you, your business or your matter, please do not hesitate to reach out to your primary Robinson Brog contact.  If you have any questions regarding this memorandum, please contact one of the authors below or the other attorneys on the COVID-19 coronavirus response team or the Robinson Brog attorney with whom you regularly work.


Jeanne R. Solomon (Corporate)

(212) 603-6310

Zachary M. Seelenfreund (Litigation)

(212) 603-6339 

COVID-19 Coronavirus Response Team:

The authors above and the following attorneys:

Stanley Bulua (Tax/ESOPs)

(212) 603-6311 

Nicholas R. Caputo (Litigation/Insurance)

(212) 603-0491 

Adam J. Greene (Corporate)

(212) 603-0496

A. Mitchell Greene

(Co-Chair, Bankruptcy)

(212) 603-6399

Fred Ringel

(Co-Chair, Bankruptcy)

(212) 603-6301 

Copyright © 2020 Robinson Brog Leinwand Greene Genovese & Gluck, P.C.

This alert is provided by Robinson Brog Leinwand Greene Genovese & Gluck, P.C. for educational and informational purposes only and is not intended and should not be construed as legal advice. This alert may be considered advertising under applicable state law.

[1]              The CARES Act text is at