On December 27, 2020, a new relief bill was passed into law including provisions for expanded unemployment benefits, stimulus checks for consumers, and funds for another round of SBA PPP loans. Under the legislations, $284 billion in funds have been set aside for PPP loans and the law includes new language governing eligibility and forgiveness. Below are the key takeaways from the new legislation:
Funds provided under legislation are earmarked both for first time PPP borrowers (subject to original PPP eligibility and limits) as well as ‘Second Draw’ loans for borrowers that already received an original PPP loan.
Eligibility for Second Draw:
- Entities must have no more than 300 employees vs 500 employees in prior round.
- New: Suffered a 25% of more reduction in gross revenues between comparable quarters in 2019 and 2020.
- Entities receiving a PPP loan in prior round still eligible for additional loan, so long as they have used or will soon use the entire amount of their first PPP loan and meet other requirements.
- Some entities previously excluded are eligible for this round: local TV, newspaper, and radio.
Size and Fee Structure for Second Draw:
- Loan size limited to 2.5 times average monthly payroll, with a maximum allowable amount of $2 million.
- Fee Structure adjusted to incentivize facilitating loans to smaller entities:
- Loans $50,000 and less; fee is lesser of 50% of PPP loan amount or $2,500
- $50,001 to $350,000; fee is 5%
- $350,001 to $2,000,000; fee is 3%
Forgiveness for First and Second Draw: Simplified forgiveness application process for loans up to $150,000, requiring borrower to sign/submit a single page certification.
Funding:
- For institutions with excess cash balances, utilize cash and expected PPP forgiveness (from prior rounds) to fund new loans. Keep in mind, the new fiscal stimulus includes direct payments to consumers, which may bolster deposit and cash balances.
- Wholesale funding remains inexpensive, with brokered and national market rates at 15bps or less for less than one-year funding.
- The Federal Reserve’s PPP Lending Facility remains operational but, at present, is set to expire on March 31, 2021. It is likely that the Fed will provide additional extensions to the PPPLF given this new round of PPP. For institutions facing capital constraints from balance sheet growth during the pandemic, the lending facility continues to serve as a viable funding source.
Taylor Advisors’ Take: We continue to see growing cash positions on many balance sheets and this new round of PPP provides an opportunity to deploy excess cash into productive assets with attractive fee income. Many institutions that were successful in the initial round of PPP were able to garner new deposit and lending relationships as they facilitated loans beyond their client base. Furthermore, loan officers likely understand clients’ revenue impact and potential eligibility for second draw opportunities. Use this as an opportunity to deepen and to grow relationships and fee income in a time of limited loan demand and earning asset yield pressure.