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January 13, 2021

PPP Second Draw. It’s Coming…

…and here are the rules.

Yesterday the SBA released its first Interim Final Rules (IFR for those in the know) for the Second Draw of PPP.

Two IFR documents were released.  The first concerned first time PPP Borrowers and the second concerned PPP2 Borrowers.  It is important to note that if you did not borrow any PPP funds in 2020, you can be a first-time borrower in 2021.  At any rate, the SBA refers to the loans as First Draw loans and Second Draw Loans.  Both have commonalities but here is the key similarity:  the program for both ends on March 31.  Another similarity is that a business owner can’t be in jail.  I guess those guys get unemployment from California so they don’t need PPP, but I digress.

First Draw PPP Borrowers:

  • If you are a first time borrower, you can borrower up to $10 million
  • Up to 500 employees
  • Self-employed, Schedule C borrowers with no employees can estimate their Schedule C for 2020 to determine their PPP Loan. Maximum allowed is $20,833.
  • 5 Year maturity
  • Uses include:
    • Covered operations expenditures – basically software needed to run your company; there are specifics but I don’t want to get into the weeds here.
    • Personal protective equipment costs, and expenditures for property improvements to mitigate the spread of covid
  • Loans of $150,000 or less will have a one page forgiveness application when borrowers seek forgiveness
  • SBA reserves the right to audit all loans. PLEASE NOTE: The requirement of economic uncertainty AND the necessity of the loan is mentioned numerous times throughout the document so any borrower would be wise to take it seriously.

Second Draw PPP Borrowers:

Essentially the same as First Draw Loans except:

  • Maximum of 300 employees
  • $2 million maximum amount
  • Must have spent the full amount of the first draw on eligible expenses – Lamborghini buyers need not apply.
  • 25% revenue reduction when comparing quarter to quarter must be shown OR you can show an annual reduction of 25% when comparing 2019 to 2020
  • Your PPP first draw is NOT included as income/gross receipts for revenue measurement purposes when applying for the Second Draw
  • NAICS code 72 businesses are eligible for 3.5x the monthly payroll – that is the restaurant and hotel business, an industry that desperately needs these funds.
  • Documentation – Pay Attention!
    • For loans with an amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019 – nothing new there, but…
    • For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness.
  • There is a new form: SBA Form 2483-SD (Second Draw)

That’s it.  Overall, not too many surprises and the focus really seems to be on the small business owner.  It is expected that the SBA will open its lending window next week, but it is very unlikely that banks will be ready that quickly.  However, it won’t be long.

Contact me if you need assistance; I’m happy to help.