Paycheck Protection Program: More Clarifying Rules, Second Draws and a New Application Form
January 11, 2021 | By: Keith A. Krauss, Esq.
On January 6, 2021, the Small Business Association ("SBA") and the Treasury Department released interim final rules for the Paycheck Protection Program (“PPP”) Second Draw Program, which was created as part of the stimulus bill enacted into law on December 27, 2020, namely the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”).
The Second Draw Program is intended to provide additional funds to certain small businesses that had previously received a PPP loan, on the same terms as the “first draw” PPP loans (i.e. 1% interest, 5-year maturity, and eligibility for forgiveness). That is, not all businesses that received a first draw PPP loan are eligible for a second draw PPP loan. In order to be eligible:
- The small business must meet a new narrower size standard – having no more than 300 employees.
- The small business must also meet a revenue reduction test – showing that it experienced a reduction in revenues in 2020 of at least 25%, comparing gross receipts to the same period in 2019.
- The small business must have fully spent its first draw PPP loan proceeds on eligible expenses.
The interim rules offer some clarification regarding the revenue reduction test.
- Applicants must have experienced at least a 25% reduction in gross receipts either during a 2020 quarter, as compared against the corresponding quarter in 2019, or experienced an annual reduction in gross receipts of at least 25% in 2020 as compared against 2019.
- Gross receipts include all revenue received or accrued by the applicant (including sales receipts, interest, dividends, rents, etc.), and include the gross receipts of affiliates. Applicants must review their gross receipts data across its affiliates to determine eligibility for second draw PPP loans for purposes of meeting the revenue reduction test.
Many of the rules and procedures remain largely the same as the original first draw PPP loans. Prospective applicants are reminded that businesses not eligible for a first draw PPP loan (including a business primarily engaged in political activities or lobbying activities, including any entity organized for research or for engaging in advocacy, or which describes itself as a ‘think tank’ in any public documents) are not eligible for a second draw PPP loan. An issuer, with securities listed on an exchange registered as a national securities exchange, is also not eligible.
If you qualify for a loan under the PPP Second Draw Program, please note that the last day to apply and receive a Second Draw PPP loan is March 31, 2021. The SBA has released the application for Second Draw PPP loans, accessible here. Applicants are required to ensure that their certifications in the Second Draw PPP loan applications are made accurately and truthfully.
On January 6, 2021, the SBA and the Treasury also released interim final rules, consolidating and restating previously issued interim rules. The interim final rules also reflect the changes to the first draw PPP loan program by the Act, including without limitation (i) expansion of allowable uses – to cover certain operations expenditures, property damage costs, supplier costs, and worker protection expenditures, as contemplated under the Act; (ii) expanded categories of businesses or entities eligible for a PPP loan (such as destination marketing organizations, tax-exempt news organizations, housing cooperatives, and 501(c)(6) tax-exempt organizations; and (iii) expanded categories and circumstances for which a business or entity may be disqualified from eligibility for a PPP loan (such as hedge funds and private equity firms). The last day to apply and receive a PPP loan is March 31, 2021.