Application for PPP Second Draw Loan and Newly Issued Guidance

We are following up on the newly issued guidance dated January 7, 2021, when the Small Business Administration (SBA) released Interim Final Rules (IFRs) regarding amendments to the Paycheck Protection Program (PPP). The IFR on the PPP Second Draw Loans emphasizes that second draw loans are generally subject to the same terms and conditions of the PPP and provides the following guidance:

Eligibility Requirements

• Borrowers must 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 disbursed to the borrower. And, all First Draw PPP Loan proceeds must have been used only for eligible expenses.
• Employ no more than 300 employees

Revenue Reduction Requirement

• Applicant must have experienced a revenue reduction of 25% or greater in 2020 compared to 2019. This can be calculated by comparing the quarterly gross receipts for one quarter in 2020 (including quarter 4) with the gross receipts for the corresponding quarter of 2019 or
• The Interim Final Rules provide that “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.” The Secretary of the Treasury has determined that this is necessary to improve administrability of Second Draw PPP Loans by providing borrowers an additional verifiable method for substantiating their revenue.
• The IFR states that gross receipts include the following “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.”
• Additionally, the Interim Final Rules also state that “all items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts
• Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts

WM Wisdom:  The SBA is following their general rules under 13 CFR Sec. 121.104 for determining gross receipts which follow the method of accounting used on income tax return filings.  We expect additional clarification as to whether a borrower may rely on GAAP financial statement revenue as their primary method of accounting.

Payroll Cost Calculation

• There is more flexibility in the relative time period for calculating the payroll costs. Either calendar year 2020 or calendar year 2019 can be used. 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
• The maximum loan a Borrower may receive from the 2^nd round of PPP Loan is the lesser of two and half months of the borrower’s average monthly payroll costs or $2 million.
• For businesses in the accommodation and food services sector, the limit is lesser of three and half months of the borrower’s average monthly payroll costs or $2 million

PPP Second Draw Loan Application and Documentation Requirements

• The Interim Final Rules did not provide the Second Draw PPP Loan application, which should be made available soon. The last day to apply will be March 31, 2021. It specifies documentation requirements that borrowers can begin to gather

• “The documentation required to substantiate an applicant’s payroll cost calculations is generally the same as documentation required for First Draw PPP Loans. However, no additional documentation is required if an applicant is using the same lender for its Second Draw PPP Loan as its First Draw PPP Loan and will have relied on its calendar year 2019 figures to determine both its First and Second Draw PPP Loans.
• For loans with a principal amount of $150,000 or less, no documentation is required at the time of application and can instead be provided with the forgiveness application or, if forgiveness is not sought, upon SBA’s request.

WM Wisdom:  Allowing businesses to rely on 2019 payroll information should speed up the borrowing process.  Small businesses should evaluate whether they paid more payroll costs during 2020 compared to 2019.  If payroll costs are greater during 2019, their bank may rely on the payroll information provided with the Round #1 submission.

Loan to Borrowers with Unresolved First Draw PPP Loans 

• The IFR explains that SBA will not issue a SBA loan number for Second Draw PPP Loan until any issues related to the First Draw PPP Loan is resolved. SBA commits to resolving such issues “expeditiously” and will set aside available appropriations to fund loans to such unresolved borrowers in the event that they are approved. 

Application for PPP Second Draw Borrower Application Form

To be redirected to the Second Draw Borrower Application form, please click here.

For additional information and links, click here.

Questions?

Should you have questions about this topic, or any other topics related to your personal or business situation, please contact us at any time. 

Sweta Joshi, CPA contributed to this article.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.