The Small Business Administration (SBA) has launched the next phase of the PPP loan program, with second draw loans available for existing recipients and more money for first-time borrowers. Guidance on the expanded program was released just over two weeks after Congress passed the latest stimulus bill and includes new interim final rules, updated forms and overviews of both programs.
The new programs launched January 11 for community banks serving minority- and women-owned businesses, with all borrowers eligible to apply shortly thereafter. This new round of loans is funded at $284 billion through March 31, 2021, so it is important to act quickly using these new rules.
Second Draw PPP Loans
A borrower is eligible for a Second Draw, forgivable PPP Loan of up to $2 million if the borrower:
- Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
- Has no more than 300 employees; and
- Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.
One set of new interim rules allows another measure of gross receipts to qualify for the second draw. A borrower that was in operation in all four quarters of 2019 can prove the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 based on copies of its annual tax forms substantiating the revenue decline.
Because the new stimulus bill did not define “gross receipts”, the new rules explain the calculation, using existing SBA size criteria. Under SBA rules, “receipts” means all revenue in whatever form received or accrued from whatever source, including the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
Note that any forgiven PPP loan is not included in 2020 gross receipts for purposes of the gross receipts calculation.
Maximum Loans for Hotels and Restaurants
For most borrowers, the maximum loan amount of a Second Draw PPP Loan is 2.5 times the average monthly 2019 or 2020 payroll costs up to $2 million. For borrowers in the Accommodation and Food Services sector, the maximum loan amount for a Second Draw PPP Loan is 3.5 times the average monthly 2019 or 2020 payroll costs up to $2 million.
Other Key PPP Rule Updates
Additional interim final rules address requirements for all borrowers and qualifications for new first-time borrowers, including:
- PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs. Under prior rules, the time periods had to be either 8 or 24 weeks, with no flexibility.
- PPP loans will cover additional expenses, including operations expenditures such as business software or cloud computing services, property damage costs due to public disturbances, supplier costs, and COVID-19 worker and customer protection expenditures.
- The Program’s eligibility retains the 500-employee limit for first-time borrowers, but it is expanded to include business leagues, chambers of commerce, real estate boards, boards of trade, housing cooperatives, destination marketing organizations and some news organizations. Eligible entities must have been in operation on February 15, 2020.
- Businesses with seasonal employees have a more flexible time frame to measure qualification for a PPP loan.
- Some existing PPP borrowers can request to modify their First Draw PPP Loan amount.
- First-time borrowers can get up to $10 million, the limit in the prior PPP rules.
New Application Forms
The SBA released new forms to use for the second phase of PPP loans: Form 2483, Paycheck Protection Program Borrower Application Form for first-time borrowers and Form 2483-SD, PPP Second Draw Borrower Application Form for those seeking a second PPP loan.
Consult the PPP Team at Frazier & Deeter to take advantage of the opportunities of the new and improved PPP program.