Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans. Following is a summary of the Guidance related to the second draw loans:
Eligibility requirements:
- Borrowers must have exhausted the first-draw PPP loan, have fewer than 300 employees and experienced a 25% reduction in gross receipts.
- The receipts reduction requirement is met by either comparing any 2020 quarter to the same quarter in 2019 OR calendar year 2020 to calendar year 2019 (helps those without quarterly books)
- Gross receipts are defined to include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Forgiven first-draw PPP loans are not included in the 2020 gross receipts.
Payroll cost calculation:
- Maximum loan is equal to the lesser of two and half months of the borrower’s average monthly payroll costs or $2 million ($4 million for affiliated groups)
- Restaurant and hospitality entities may use 3.5 times payroll costs
- Payroll costs may be based on either the twelve-month period prior to when the loan is made, calendar year 2019 or calendar year 2020.
- Calculating payroll costs based on calendar years, rather than the twelve months preceding the date the loan is made, will simplify the calculations and documentation requirements for borrowers since payroll records are more commonly created and retained on a calendar-year basis.
- Includes retirement, employee group health, life, disability, vision and dental insurance contributions
Eligible non-payroll costs now include:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 government health and safety guidelines.
- Covered operating expenditures, which include payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
Loan application and documentation requirements:
- If using the same lender, no additional documentation to substantiate payroll costs will be required if the applicant used calendar year 2019 figures to determine its First Draw PPP Loan amount and uses calendar year 2019 figures to determine its Second Draw PPP Loan amount.
- For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a receipts reduction of 25% or greater in 2020 relative to 2019.
- Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements.
- 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 will be required at or before submission of the forgiveness application.
- Borrowers may choose a covered period that is between 8 and 24 weeks.
- The application is expected to be released within the next week
- Applications must be submitted by March 31, 2021
Simplified forgiveness
Borrowers that received or will receive a PPP loan of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA has yet to create the simplified application form but must do so by Jan. 20. The form may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
Cullari Carrico LLC remains committed to assisting our clients, friends and communities during these uncertain times and has a dedicated team in place that can assist with any questions you have related to this or other government programs. We invite you to contact us if you have questions or concerns.