February 10, 2021

SBA Guidance: First and Second Draw PPP Loans

Written by Dean Krech

The Consolidated Appropriations Act (CAA) signed into law at the end of December 2020 reopened the Paycheck Protection Program (PPP) for first draw loans and added a second draw PPP with more narrow application rules. Subsequently, on January 19, 2021, the Small Business Administration (SBA) and Treasury released further detailed guidance specific to this program. This article presents a summary of important additions and changes for both first and second draw loans under PPP.

First Draw PPP

  • The CAA expands the list of eligible borrowers under the PPP to include housing cooperatives (but not condominiums), certain 501(c)(6) trade organizations, and nonprofit destination marketing organizations, that employ no more than 300 employees.
  • While 501(c)(6) trade organizations are included generally, professional sports teams or organizations that devote significant activities to lobbying (defined as (i) more than 15 percent of the total activities of the organization, or (ii) more than $1,000,000 during the tax year ended February 15, 2020) are not eligible. Public companies, other than news organizations, and companies that are permanently closed are not eligible for PPP loans under the CAA.
  • A one-page forgiveness application has been added (SBA FORM 3508S) for PPP loans < $150K.
  • Payroll has been expanded to include company-paid disability, vision and dental.
  • For applicants who also received an advance under the EIDL Program, those no longer get deducted from the forgiveness calculation.
  • Additional eligible uses have been added, including worker protection costs related to COVID-19, uninsured property damage costs from looting or vandalism during 2020, and certain supplier and operations costs.

Second Draw PPP

  • Application for the new draw are available until March 31, 2021.
  • First draw PPP funds must be spent by the second draw disbursement date.
  • Eligible borrowers must have less than 300 employees. This is compared to 500 on Round 1.
  • Maximum loan sizes for Round 2 are $2M, versus $10M in Round 1.
  • Loan amounts are equal to 2019 or 2020 average monthly payroll x 2.5. For entities with NAICS code beginning with “72”, this factor is increased to 3.5. For self-employed persons, the loan amount is again based on net self-employment income (not to exceed $100,000.)
  • Borrowers must show a 25% “gross receipts” reduction in any 2020 calendar quarter compared to that same quarter in 2019. NOTE: The borrower can also compare ANNUAL 2020 gross receipts versus 2019 for purposes of this test.
  • “Gross receipts” include whatever revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including the sales of products or services, interest, dividends, rents, royalties, fees or commissions.
  • Accounting method for purposes of this test should follow that which is used on the entity’s tax returns.
  • PPP Round 1 proceeds are excluded from the “gross receipts” reduction test.

Second Draw Documentation Requirements

Borrowers have no additional supporting documentation requirements if 2019 payroll figures are used, and application is through the same bank as Round 1.

For Round 2 loans > $150,000, borrowers will need to submit supporting documentation of “gross receipts” decline. This will vary by lender and may include internal or external financial statements, or tax forms.  

For Round 2 loans < $150,000, documentation is not required by SBA to be submitted with the loan application but must be submitted by the time the borrower applies for forgiveness. Lenders may vary in their approach to this requirement and may ask for supporting documentation at time of application.

Please let your JHM contact know if you have any questions on these items or other potential Covid-19 relief options.

Helpful Links

PPP First Draw Borrower Application Form

PPP Second Draw Borrower Application Form