PPP2 Loan Applications & Recent Interim Final Rules

Please note: This blog is current to the date of its publication, Tuesday, Jan. 12. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.

On Dec. 27, 2020, the Consolidated Appropriations Act, 2021 (Act) was signed into law. This relief bill extends unemployment benefits and employee retention credits, deems business expenses paid by PPP loans to be tax-deductible and provides other forms of relief, including the re-opening of the Paycheck Protection Program (PPP).

The reignited PPP legislation extends the application window through March 31, 2021, for First Time Borrowers and also provides an opportunity for a Second Draw PPP Loan for businesses and organizations hit hardest by the COVID-19 pandemic.

Last week, the Small Business Administration (SBA) issued guidance for the updated PPP via two interim final rules (IFRs) which consolidate the rules for PPP First Time Borrowers and provide clarification for PPP Second Draw Borrowers. Some of the highlights are noted below:

SOURCE: Business Loan Program Temporary Changes: Paycheck Protection Program as Amended by Economic Aid Act

  • First Time Borrower Eligibility:
    • Companies with 500 or fewer employees that are eligible for other SBA7(a) loans
    • Sole proprietors, independent contractors and certain self-employed individuals
    • Nonprofits, including churches and faith-based organizations
    • Housing cooperatives, certain 501(c)(6) organizations and certain destination marketing organizations that employ 300 or fewer employees and meet certain lobbying thresholds
    • Food service operations (NAICS Code 72) with fewer than 500 employees per location
    • Certain news and nonprofit public broadcasting entities (with limitations)
  • First Time Borrower Ineligibility:
    • Permanently closed entities and entities in bankruptcy
    • Businesses not in operation on Feb. 15, 2020
    • Entities receiving Shuttered Venue Operator Grants
    • Lobbying organizations
    • Household employers
  • First Draw PPP Loan Amounts:
    • $10 million maximum loan amount
    • Each loan amount is calculated at 2.5x the average monthly payroll cost for most organizations (excluding compensation greater than $100,000 per employee)
    • Each loan amount for businesses in the hospitality industry (NAICS Code 72) is calculated at 3.5x the average monthly payroll cost
    • All new borrowers can use 2019 or 2020 data for the purposes of calculating their maximum loan amount
  • First Draw PPP Eligible Costs and Loan Forgiveness:
    • Because organizations can receive PPP funding and still claim the Employee Retention Credit (ERC), payroll costs that are qualified wages taken into account in determining the ERC are not eligible for forgiveness
    • An Economic Injury Disaster Loan (EIDL) advance received by the Borrower no longer reduces the amount of forgiveness to which the Borrower is entitled
      • Any EIDL advance amounts previously deducted from a Borrower’s forgiveness amount will be remitted to the lender with interest
    • At least 60% of the PPP loan proceeds are required to be used for payroll costs
    • In addition to payroll, rent, covered mortgage interest and utilities, the following expenses are now eligible:
      • Covered operations expenditures, including business software or cloud-computing services that facilitate business operations
      • Covered property damage related to vandalism or looting due to public disturbances in 2020 that was not covered by insurance or other compensation
      • Certain covered essential supplier costs
      • Covered worker protection expenses
    • Seasonal employers are defined as an employer who operates for no more than seven months in a year OR employers who earned no more than 1/3 of receipts in any six months in the prior calendar year
    • If a seasonal employer received a PPP loan prior to Dec. 27, 2020, and would be eligible for a higher maximum loan amount under the latest Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (EAA) guidance, the lender may submit a request to the SBA to increase the PPP loan amount
    • Borrowers who returned all or part of a PPP loan may reapply for the difference if they have not yet received forgiveness
    • Borrowers whose loans could have been increased due to changing guidance can modify loan amounts, and lenders can make a single additional disbursement of the increased loan proceeds
    • To apply for a PPP loan, Borrowers must complete Form 2483

SOURCE: Business Loan Program Temporary Changes: Paycheck Protection Program Second Draw Loans

Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. However, key differences between the two are outlined below:

  • Second Draw PPP Loan Eligibility:
    • Companies with 300 or fewer employees
    • Companies that experienced a gross receipt decline of at least 25% in one quarter of 2020 in comparison to the same quarter in 2019 (excluding PPP or EIDL funding)
    • 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
    • If a Borrower was in operation for all four quarters of 2019 and experienced a decline of 25% or more in ANNUAL receipts in 2020 compared to 2019, the Borrower can submit annual tax returns to substantiate revenue decline
    • Companies that received a First Draw PPP Loan and have 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 to be disbursed to the Borrower
  • Second Draw PPP Loan Amounts:
    • The maximum loan amount for Second Draw PPP Loans is $2 million and is calculated consistently with First Draw PPP Loan amounts
    • Payroll costs can be calculated based on either the 12-month period prior to when the loan is made or the 2019 calendar year
  • Second Draw PPP Loan Documentation Requirements:
    • Documentation to substantiate payroll cost calculations is generally the same as what was required for First Draw PPP Loans
    • If the Lender is the same for First and Second Draw PPP Loans, no additional documentation to substantiate payroll costs will be required if the applicant used the 2019 calendar year to determine its First Draw PPP Loan amount AND to determine its Second Draw PPP Loan amount (unless requested by the Lender for good-faith review)
    • Applicants for loans greater than $150,000 must submit documentation to support a 25% revenue reduction, which could include tax forms, quarterly financial statements or bank statements
    • Applicants for loans less than $150,000 are NOT required to submit documentation to support a 25% revenue reduction for the application but ARE required to submit such documentation during the forgiveness application process
    • To apply for a Second Draw PPP Loan, applicants will submit SBA Form 2483-SD, including copies of the required certifications and documentation so the Lender can then process through the SBA
    • Second Draw PPP Borrowers are required to make good faith certification of need on the application, similar to First Draw PPP loans
    • Second Draw PPP Loans are eligible for loan forgiveness on the same terms as First Draw PPP Loans, except that Second Draw PPP Loans Borrowers of less than $150,000 are required to provide documentation of revenue reduction if not provided at the time of the application

On Jan. 8, 2021, the SBA released PPP borrower application forms, including Form 2483 for First Time Borrowers and Form 2483-SD for Second Draw PPP Borrowers. The reignited PPP launched Jan. 11 for select Lenders and Borrowers and is expected to open to all later in the week.

The PPP legislative updates are complex, but the experts at SST are equipped and available to help your organization navigate what’s next. Contact us today for an in-depth look at your financial needs.

Special thanks to SST Partner Emily Cook for providing the content for this post.