By Raffi Yousefian | Published 01/07/2021; Updated 01/07/2021 4:02:41 PM
On December 27, 2020, President Trump signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) to provide continued assistance to individuals and businesses that have been financially impacted by the ongoing coronavirus pandemic. Section 311 of this act authorizes the SBA to issue a second round of Paycheck Protection Program (PPP) loans. We’ve summarized everything you need to know about the second round of PPP below. Other than the differences below, all other details of this loan are the same as the initial round of PPP.
The new package creates a second round of PPP loans for borrowers that:
- experienced a 25% drop in gross receipts during a quarter in 2020 relative to that same quarter in 2019*; and
- If the entity was not in business during the 1st or 2nd quarter of 2019 but was in business during the 3rd or 4th quarter of 2019, then the gross receipts from the 3rd or 4th quarter of 2020 can be compared to the 3rd or 4th quarter of 2019 respectively.
- If the entity was not in business during the 1st, 2nd, or 3rd quarter of 2019 but was in business during the 4th quarter of 2019, then the gross receipts from the 4th quarter of 2020 can be compared to the 4th quarter of 2019.
- If the entity was not in business during 2019 but was in business on February 15, 2020, then the gross receipts from the 2nd, 3rd, or 4th quarter of 2020 can be compared to the 1st quarter of 2020.
- have fewer than 300 employees**
*Alternatively, 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 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. This method will be particularly important for small borrowers that may not have quarterly revenue information readily available.
**This doesn’t apply to businesses with NAICS code beginning with 72, instead, these businesses are subject to the 300 employees per location limitation similar to PPP 1.
Gross receipts include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Forgiveness income from PPP 1 is not included in gross receipts!
The following entities are now eligible:
- Borrowers who also claim the Employee Retention Credit. However, any wages for which a credit is computed will not be treated as forgivable payroll costs for purposes of the PPP.
- Sec. 501(c)(6) not-for-profit organizations
- This includes chambers of commerce, visitors’ bureaus, etc., and “destination marketing organizations”
The following entities are not eligible:
- an entity that has permanently closed
- a business concern or entity primarily engaged in political activities or lobbying activities, including any entity that is organized for research or for engaging in advocacy in areas such as public policy or political strategy or that describes itself as a think tank in any public documents
- entities that receive a grant under the Shuttered Venue Operator Grant program (see below)
- entities affiliated with entities in the People’s Republic of China
- any person required to submit a registration statement under section 2 of the Foreign Agents Registration Act of 1938
- publicly held companies
- entities in which the President, the Vice President, the head of an Executive department, or a Member of Congress, or the spouse of such person owns, controls, or holds at least 20 percent of any class of equity
A Second Draw PPP Loan may only be made to an eligible borrower that (i) has received a First Draw PPP Loan, and (ii) 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.
The amount of the loan is calculated the same way as the first round of PPP (2.5x months of payroll costs) with the exception of the following:
- 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 2020, or calendar year 2019
- Businesses in the hospitality industry – such as bars, restaurants, and hotels – will be permitted to borrow 3.5 times the average monthly payroll, limited to $2 million. The 2.5x average monthly payroll loan amount has not changed for non-hospitality borrowers.
- For a new entity, that did not exist during the one-year period before February 15, 2020, but was in operation on February 15, 2020, its loan amount can be calculated by multiplying the below figure by 2.5 or 3.5:
- The sum total of monthly payments made by the borrower to cover payroll costs (as of the date the borrower applies for the second draw loan) and dividing that sum by:
- The number of months in which those payroll costs were paid
- The maximum loan amount has been reduced from $10 million to $2 million.
- businesses 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
We’re unsure when the new PPP loan applications will be available, but we do know the following:
- The applicant must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form) or the lender’s equivalent form including the required certifications and the documentation.
- Loan applications must be submitted by March 31, 2021
No additional documentation to substantiate payroll costs will be required if the applicant
- used the calendar year 2019 figures to determine its First Draw PPP Loan amount,
- used the calendar year 2019 figures to determine its Second Draw PPP Loan amount, and
- 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
If the borrower does not qualify for this, then they must provide the same documentation as they did in the first round of PPP.
For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements.
For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan but must be submitted on or before the date the borrower applies for loan forgiveness.
On the application, an authorized representative of the applicant must certify that:
- the applicant has not and will not receive another Second Draw Paycheck Protection Program Loan
- the Applicant has realized a reduction in gross receipts in excess of 25% relative to the relevant comparison time period
- the Applicant received a First Draw Paycheck Protection Program Loan and, before the Second Draw Paycheck Protection Program Loan is disbursed, will have used the full loan amount (including any increase) of the First Draw Paycheck Protection Program Loan only for eligible expenses.
- the Applicant is not a business concern or entity that falls under one of the ineligible entities (public company, lobbying, etc.)
Second Draw PPP Loans are eligible for loan forgiveness on the same terms and conditions as First Draw PPP Loans, except that Second Draw PPP Loan borrowers with a principal amount of $150,000 or less are required to provide documentation of revenue reduction if such documentation was not provided at the time of the loan application.
We’re still waiting on guidance regarding the loan forgiveness of second-round PPP loans.