The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted by Congress and signed into law by President Trump. $900 billion of COVID relief includes round two of the Paycheck Protection Program (PPP) loan program. $284 billion has been set aside for PPP-2, called “Paycheck Protection Program Second Draw Loans.”
There are some significant changes to this program versus the first PPP loan program that you should know about.
How long will the Paycheck Protection Program Second Draw Loans be available?
For borrowers that previously received a PPP loan and have used, or will use the full amount of the initial PPP loan for authorized purposes on or before the expected date of disbursement of the Second Draw PPP Loan, the SBA may guarantee loans through March 31, 2021.
What are the key differences between First Draw PPP Loans and Second Draw PPP Loans?
Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. That is, the loans are forgivable, no collateral or personal guaranties are required, the interest rate is 1%, the term is five (5) years, and lenders will be permitted to rely on certifications of the borrower to determine the borrower’s eligibility and use of loan proceeds. However, the eligibility requirements for Second Draw PPP Loans have been narrowed.
What are the eligibility requirements for a Second Draw PPP Loan?
A borrower is eligible for a Second Draw PPP Loan if it has 300 or fewer employees.
A borrower is eligible for a Second Draw PPP Loan if it has experienced a revenue reduction in 2020 relative to 2019 of 25% or greater.
A borrower is eligible only if they have received a First Draw PPP Loan, and has used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower.
A borrower must have spent the full amount of its First Draw PPP Loan on eligible expenses under the PPP rules to be eligible for a Second Draw PPP Loan.
A borrower cannot receive a Second Draw PPP Loan if the borrower has not complied with PPP loan program requirements.
Give me an example of how to calculate the revenue reduction.
A borrower must calculate their revenue reduction by comparing quarterly gross receipts for one quarter in 2020 with the corresponding quarter of 2019. For example, a borrower with gross receipts of $50,000 in the second quarter of 2019 and $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40% between the quarters, and is therefore eligible for a Second Draw PPP loan, assuming all other criteria is met.
A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.
What if I didn’t experience a 25 percent annual decline in annual revenues, but did experience a drop of 25% in one quarter?
A borrower that did not experience a 25 percent annual decline in revenues, or that was not in operation in all four quarters of 2019, may still meet the revenue reduction requirement under one of the quarterly measurements described above.
Must I include the amount of my forgiven First Draw PPP loan in my gross receipts?
No. The amount of any forgiven First Draw PPP Loan is not included in a borrower’s gross receipts.
Am I disqualified from receiving a Second Draw PPP loan if I received forgiveness on a First Draw PPP loan?
No. A borrower is not disqualified from receiving a Second Draw PPP Loan because it received forgiveness on a First Draw PPP Loan.
What if I have employees at more than one location?
A single business entity that is assigned a NAICS code beginning with 72 (Accommodation and Food Services) is eligible to receive a Second Draw PPP Loan if it employs no more than 300 employees per physical location and meets the revenue reduction requirements and otherwise satisfies the eligibility criteria.
What if I am affiliated with another restaurant company?
Specifically, a business with a NAICS code beginning with 72 qualifies for the affiliation waiver for Second Draw PPP Loans if they employ 300 or fewer employees.
What if I have permanently closed, can I still receive a Second Draw PPP Loan?
No. An entity that has permanently closed cannot receiving a Second Draw PPP Loan.
What is the maximum loan amount for a Second Draw PPP loan?
For a restaurant company, the maximum loan amount is equal to the lesser of three and a half (3.5) months of the borrower’s average monthly payroll costs, or $2 million. For all other businesses, the maximum loan amount is the lesser of two and a half (2.5) months of the borrower’s average monthly payroll costs, or $2 million.
What is the relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan?
The relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made, calendar year 2019 or 2020. Calculating payroll costs based on calendar year 2020 rather than the twelve months preceding the date the loan is made will simplify the calculations and documentation requirements for borrowers because payroll records are more commonly created and retained on a calendar-year basis.
Are there any limitations on payroll costs?
In calculating a borrower’s payroll costs, the borrower must subtract any compensation paid to any employee that received in excess of $100,000 on an annualized basis.
What is the maximum loan amount if I have multiple locations that are part of a single corporate group?
Locations that are part of a single corporate group shall in no event receive more than $4,000,000 of Second Draw PPP Loans in the aggregate.
Will I be required to document my payroll costs similar to the PPP-1 program?
No additional documentation is needed to substantiate payroll costs if the following is adhered to: (1). The applicant used calendar year 2019 figures to determine its First Draw PPP Loan and uses calendar year 2019 figures to determine its Second Draw PPP Loan amount (instead of calendar year 2020). (2). the lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan.
Must I make the same certification that I made on the first PPP loan?
Yes, the same certification is required: "The current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
Are Second Draw PPP loans eligible for forgiveness?
Yes, Second Draw PPP Loans are eligible for loan forgiveness on the same terms and conditions as First Draw PPP Loans.Loan forgiveness will be provided equal to the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, covered utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, and not more than 40% of the forgiven amount may be for non-payroll costs.
How do I submit an application for a Second Draw PPP Loan and what documentation must I provide to demonstrate eligibility?
You must submit to the lender SBA Form 2483-SD—Paycheck Protection Program Second Draw Borrower Application Form.
Where can I find more information about the Second Draw PPP Loan program?
You can read the SBA’s Interim Final Rule.
The National Restaurant Association has an informative sheet on its website.
The accounting firm, Cohn Reznic, has a detailed information sheet.