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Interim Final Rules Released Offering Clarification on Second Draw PPP Program

Summary of important deadlines, eligibility requirements, and loan amounts

On December 27, 2020, President Trump signed into law the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act or EAA). The EAA established the Second Draw PPP Loans Program (PPP2).

On January 6, 2021, the Treasury Department released two Interim Final Rules (IFR) providing further clarification on the program. Loan terms and many other details are consistent with the first round of PPP loans, although there are some differences. Cain Watters & Associates has provided AAO members with the following is a summary of the EAA provisions for the program:

PPP2 Important Dates & Deadlines:

  • The EAA became effective as of the date of the enactment of the bill
  • Borrowers will have until March 31, 2021 to apply for a loan under PPP2
  • The SBA lender portal is not open at this time to accept applications. Until that takes place—you cannot submit an application for your loan.

Eligibility Requirements:

For CWA purposes, PPP2 loans will be eligible for businesses concerns, self-employed individuals, independent contractors, and sole proprietors that:

  • Received a first draw PPP loan under the first PPP eligibility requirements
  • Has used, or will use, first draw proceeds on authorized uses before the expected date on the Second Draw PPP loan is disbursed to the borrower
  • Employs 300 or less employees
  • Experienced a 25% reduction in gross receipts during one quarter of 2020 compared to the same quarter in 2019, or a reduction in annual revenue of 25% or greater in 2020 compared to 2019. In this second case the business must submit its annual tax forms substantiating the revenue decline.

CWA Comments:

The IFR specifically mentions quarter-over-quarter comparisons so the implication is that a business cannot select any rolling three-month window to qualify.

For an applicant in business all of 2019 and 2020, showing a full year annual decrease may be difficult since 2020 tax returns may not yet be prepared. Additionally, we found many CWA clients were able to recover on an annual basis, making it difficult to show a substantial decrease. We feel the application will largely concern Q1 or Q2 2020 compared to 2019 and suggest submitting that time frame in the application.

It’s also important to note that proceeds from the first draw PPP loan will not be included in gross receipts for above eligibility tests. However, based on the language in the IFR, it is assumed any HHS Provider Relief Payment received or local grant received will be included as gross receipts until

otherwise excluded by the Treasury. This will not likely impact CWA clients since many received these funds in Q3 or Q4.

Maximum Loan Amount:

In general, the loan amount is calculated based on average monthly payroll costs and in the same payroll calculation as the First Draw PPP loan was calculated.

Maximum loan amount is the lesser of:

  • 2.5 times borrower’s average monthly payroll costs; or
  • $2,000,000

CWA Comments:

Applicants are allowed to use 2020 payroll costs at their discretion. This could result in a higher loan amount for practices who had higher payroll costs in 2020 than 2019. In many cases, with the furloughs of 2020, payroll costs may in fact be higher in 2019.

Submitting an Application for PPP2:

  • Applicant must file Form 2483-SD or lender’s equivalent form.
  • If an applicant is borrowing from the same bank and using the same figures for the calculation of the loan amount then no payroll information is needed to apply.
  • For loans greater than $150,000, submit documentation of reduction in revenue at the time of application.
  • For loans less than $150,000, submit documentation of reduction in revenue no later than the date of filing for forgiveness. However, the reduction of revenue must be attested to at the time of application.
  • Documentation to substantiate reduction in gross receipts will be one of the following:
    • Tax returns if they are filed
    • Bank statements
    • Quarterly financial statements
  • At time of application, the borrower must also make the same certifications as the First Round PPP as well as additional ones certifying that they have not already received a second PPP2 loan and used the first round of PPP monies for qualified purposes before the disbursement of PPP2 loan proceeds.

PPP2 Loan Forgiveness:

PPP2 loans are eligible for loan forgiveness on the same terms and conditions as First Draw PPP loans except that PPP2 loans under $150,000 are required to provide documentation of revenue reduction if such documentation was not provided at time of application.

The 60/40 rule still applies as in the First Round PPP Loan. Please refer to CWA’s original blog for a list of eligible expenses and commentary on each.

Additional information will be shared as it is released by the Treasury and SBA. For all our updates, visit our blog at cainwatters.com/digitalblogs

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