Second Draw PPP Loans

Late this past Wednesday, the SBA issued Interim Final Rules addressing Second Draw PPP Loans. These PPP Loans were approved in the Stimulus Bill passed by Congress in late December.

The last day to apply for a Second Draw PPP Loan is March 31, 2021. If you meet the Second Draw Loan requirements and are interested in applying, watch for your bank to email you a link, same as with the First Draw PPP Loan.

To qualify for a Second Draw PPP Loan, you must meet FIVE requirements:

1. You are a business, independent contractor, eligible self-employed individual, or other qualified entity, like First Draw Loans.
2. You have 300 or fewer employees.
3. Your business has experienced a revenue reduction of 25% or greater in 2020 relative to 2019, more on this below.
4. You received a First Draw PPP Loan.
5. You have used/will use the full amount of the First Draw PPP Loan on or before the expected date to receive the Second Draw PPP Loan proceeds.

Revenue Reduction – For a business operating all of 2019 and 2020, you compare your quarterly gross receipts for one quarter in 2020 with the gross receipts for the corresponding quarter of 2019. At least one quarter in 2020 must be at least 25% less than the corresponding quarter in 2019.

Gross Receipts – The SBA defines gross receipts as “all revenue in whatever form received or accrued (per the entity’s accounting method) from whatever source, including the sale of products or services, interest, dividends, rents, royalties, fees or commissions, reduced by returns or allowances. Schedule C people use the Gross Income on their Schedule C.

Payroll Costs – You can use calendar year 2019 or 2020 payroll costs or the one-year period before the Second Draw PPP Loan date. Schedule C filers can use their 2019 or 2020 Schedule C. You have flexibility here with the time.

Documentation – If you are applying with the same bank as your First Draw PPP Loan and using the same period of payroll costs (2019 for most), you do not need to resubmit your documentation, as the SBA already has it. For loans under $150,000, you do not need to submit any documentation proving the 25% revenue reduction with the application, only at the time of forgiveness. For Second Draw Loans more than $150,000, you must submit documentation proving your 25% revenue reduction. These can be tax returns assuming the year 2020 is completed by March 31. You can also use quarterly financial statements or bank statements.

Forgiveness – Second Draw PPP Loans are eligible for forgiveness, just like the First Draw Loans.

Certification – As with the First Draw Loans, all borrowers must be able to certify that the “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant” as of the date on which the Second Draw PPP loan application is submitted. The SBA has the right to audit any loan and demand repayment if the SBA determines the loan was not necessary for your business.