Paycheck Protection Program – Second Draw

On December 27, President Trump signed Coronavirus Response and Relief Supplemental Appropriations Act of 2021 legislation that will reopen the Paycheck Protection Program and allow previous borrowers to apply for a second PPP loan.

What Businesses are Eligible to Apply

  • Employee Limits
    • For first-time borrowers, businesses must have 500 or fewer employees. Borrowers applying for a second PPP loan must have 300 or fewer employees.
    • Certain businesses over the respective employee limits above, including franchises and NAICS 72 businesses (Accommodation and Food Services), may still qualify.
    • Businesses using a Professional Employer Organization (PEO), or transitioning to a PEO, that meet the eligibility criteria for a loan can apply.
  • Certification of Need
    • All borrowers applying for a PPP loan need to meet the SBA’s certification of need requirement, attesting that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”
  • Revenue Requirements
    • Businesses applying for a second PPP loan will need to demonstrate at least a 25 percent reduction in revenue between corresponding quarters in 2019 and 2020.
    • The borrower may select the relevant quarter for comparison. Special rules apply to borrowers that were not in business for all or part of 2019.
    • Borrower must have spent all of the proceeds from the first PPP loan before funds from the second loan are disbursed.

When to Apply

  • The SBA has been instructed to issue guidance within 10 days of the legislation enaction. Check with your lender to determine when they may start to accept new PPP loan applications. Applications are open until March 31, 2021, or until allocated funds are exhausted.

Additional Important Changes

  • Businesses that receive PPP loans (first or second round) and have them forgiven will be allowed to deduct the costs covered by those loans on their federal tax returns.
    • States vary in their approach to conformity with the Internal Revenue Code. Illinois is a rolling conformity state, which means that unless they specifically state otherwise, the state law will match the federal law and PPP expenses will be deductible. California and North Carolina have laws that will prevent taxpayers from deducting PPP expenses. You should check the conformity laws in your state to determine the correct treatment.
  • Borrowers applying for a second PPP loan are limited to $2 million or less in loan proceeds.
  • The loan amount will be 2.5x average monthly payroll. The payroll number can be either the 2019 average, or the previous 12 months. Certain businesses may also be eligible for 3.5x wages loan calculation for second draw loans.

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