With approximately three weeks remaining in the application period for the second draw of the Paycheck Protection Program (PPP), the SBA reports that 2,194,420 second draw loans have been approved, for a total of $156,253,510,068 (as of February 28). However, $284 billion has been allocated to PPP (including $138 billion of unspent loans from the first round that were reinvested) and the program has been extended to March 31, 2021.
Second-draw loans are available for businesses with under 300 employees. However, a 14-day exclusivity period for businesses and nonprofits with fewer than 20 employees began on Wednesday, February 24, 2021, and ends on Tuesday, March 9, 2021, at 5 p.m. ET. There is still time for businesses – including many which received a loan during the initial PPP period in 2020 – to apply for funding.
Three of the most common questions being asked about the second draw PPP involve eligible expenses, forgiveness, and the Employee Retention Tax Credit (ERTC). The SBA provided these answers:
Question: To be eligible for a Second Draw PPP Loan, a borrower must certify on SBA Form 2483-SD that, before the Second Draw PPP Loan is disbursed, the borrower will have used the full loan amount (including any increase) of its First Draw PPP Loan “only for eligible expenses.” How does the separate requirement that the borrower must use at least 60% of the First Draw PPP Loan proceeds for payroll costs affect this certification?
Answer: The borrower may certify, for purposes of the Second Draw PPP Loan application, that it will have used all of its First Draw PPP Loan proceeds “only for eligible expenses” if the borrower has used or will use the First Draw PPP Loan proceeds for any or all of the eligible expenses outlined in subsection B.11.a.i.-xi of the consolidated interim final rule implementing updates to the PPP. Borrowers should be mindful that failure to use PPP loan proceeds for the required percentage of payroll costs will affect loan forgiveness.
Question: If a borrower received partial forgiveness of its First Draw PPP Loan, does this make the borrower ineligible for a Second Draw PPP Loan?
Answer: If a borrower received partial forgiveness of its First Draw PPP Loan, the borrower is eligible for a Second Draw PPP Loan as long as the borrower used the full amount of its First Draw PPP Loan only for eligible expenses outlined in subsection B.11.a.i.-xi of the consolidated interim final rule implementing updates to the PPP.
Question: As of December 27, 2020, is an employer that receives a First Draw PPP Loan or Second Draw PPP Loan also eligible for the Employee Retention Credit?
Answer: The Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116260, 134 Stat. 1182, on December 27, 2020, permits an employer that received a First Draw PPP Loan or Second Draw PPP Loan to claim the Employee Retention Credit if the employer is otherwise an eligible employer satisfying the requirements for the credit. However, payroll costs that are qualified wages for the Employee Retention Credit are not eligible for loan forgiveness if the employer elects to claim the credit for those amounts.
If you have additional questions about these issue or other parts of the PPP program, please call Gray, Gray & Gray at (781) 407-0300.