Paycheck Protection Program (PPP) – Round 2

PPP Loans – Round 2

The Relief Act provides for a new round of PPP loans (or PPP-2), containing provisions targeted to help smaller businesses with a second round of PPP loans and offering the potential for additional funding to Borrowers with original PPP loans. PPP-2 loans will be made available to both first-time qualified borrowers as well as to those borrowers who previously received a PPP loan earlier in 2020.

PPP Eligibility Requirements for Borrowers to Receive a 2nd PPP Loan.

Pursuant to Sec. 311, PPP Second Draw Loans, previous PPP loan borrowers can apply for an additional loan of up to $2 million, if they meet the following requirements:

• Have 300 or fewer employees
• Have used or will use all of the proceeds from their first PPP loan
• Had a 25% or greater reduction of “gross receipts” when comparing any quarter in 2020 to the same quarter in 2019

In addition, the following stipulations apply to this round of PPP loans:

• The PPP-2 loans cannot exceed $2 million
• The loan is based on 2.5 x average monthly payroll costs in 1-year prior to loan or calendar year 2019
• For Borrowers with NAICS codes starting with 72 (i.e., hotels and restaurants), the loan is based on 3.5 x average monthly payroll costs
• Similar to the first round of PPP loans, eligible spending must be comprised of at least 60% on payroll costs (compensation, health, retirement and state and local payroll taxes) over a Covered Period of either 8 or 24 weeks. See below for additional eligible costs.
• New PPP loans will be available through March 31, 2021

25% Loss of Revenue Required to Qualify.

To qualify for a second draw loan, a small business must certify that they have had a loss of revenue of 25% or greater. This criterion is drastically different from the original qualification rules for PPP, which simply required the small business to state that economic uncertainty made the PPP loan necessary. Under the 25% loss-of-revenue test, the small business will compare their 2020 quarterly revenue (aka, gross receipts) against their 1st, 2nd and 3rd quarters of revenue in 2019. In order to qualify for a second draw PPP loan, a borrower must be able to show a loss in revenue of 25% or more from at least one quarter of 2020 as compared to that same quarter in 2019.

Eligible Costs for Loan Forgiveness is Being Expanded.

Costs eligible for forgiveness under the original PPP loan as well as PPP-2 loans include: payroll, health insurance, retirement contributions, mortgage interest, rent and utilities. The Relief Act added the following costs as eligible for forgiveness:

• Covered worker protection expenditure, operating or capital expenditures to facilitate the adaption of business activities of an entity to comply with COVID-19 federal, state or local government health and safety guidelines.
• Covered supplier costs: An expenditure to a supplier that is essential to the operations at the time at which the expenditure is made and is made pursuant to a contract, order, or purchase order.
• Covered operations expenditure, payment for any business software or cloud computing services that facilitates business operations, product or service delivery, payroll processing, human resources, sales and billing functions or accounting for supplies, inventory, records and expenses.
• Covered Property Damage Costs: Cost related to a property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.
• Payroll Costs: Costs eligible for forgiveness were amended to include insurance payments for group life and disability. The Relief Act also inserted vision and dental insurance into the law, though prior SBA guidance permitted those costs under the category of health insurance.

Borrowers of PPP Loans of Not More Than $150,000

The SBA has 24 days after the enactment of this Relief Act to create a one-page loan forgiveness certification form for loans of $150,000 or less that require the eligible borrower to:

• Provide a description of the number of employees the Borrower was able to retain because of the PPP loan
• Provide an estimated amount of loan spent by the Borrower on payroll costs
• Provide the amount of the total PPP loan
• Retain employment records for 4 years following submission
• Retain other records for a 3-year period

Disclaimer: Please note this is based on the information that is currently available and is subject to change.