The U.S. Treasury Department and Small Business Administration (SBA) have issued initial guidance on the soon-to-be-launched “second” Paycheck Protection Program (PPP) that was included in the recently enacted Economic Aid Act. There are a number of changes and updates for both first-time PPP borrowers and previous borrowers who may be eligible for a second loan.

First-Time PPP Borrowers
Eligibility for PPP loans is based on the following criteria:
  • The maximum for a first-draw PPP loan is $10 million, the same as in the original PPP
  • Borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in the year prior to the loan or the calendar year
  • Businesses with 500 or fewer employees that were in operation on February 15, 2020 may also be eligible for other SBA 7(a) loans
  • Sole proprietors, independent contractors and eligible self-employed individuals
  • Non-profits (including churches)
  • Accommodation and food service operations with 500 or fewer employees per physical location
  • Business associations (such as chambers of commerce, visitors bureaus, destination marketing organizations, etc.) with 300 or fewer employees and with lobbying income and expenses less than 15% of total activities (and no more than $1 million maximum); sports leagues are not eligible
  • News organizations that are majority-owned or controlled by an NAICS code 511110 or 5151 business or not-for-profit public broadcasting entity, with 500 or fewer employees per location

Second-Time PPP Borrowers
Certain previous PPP funding recipients may be eligible for a second loan of up to $2 million, provided that:
  • The maximum for a second-draw PPP loan is $2 million
  • Borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in the year prior to the loan or the calendar year
  • PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans
  • Have 300 or fewer employees
  • Have used or will use the full amount of their first PPP loan on eligible expenses on or before the expected date of disbursement of the second loan
  • Experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019; determined by calculating gross receipts in any quarter of 2020 with an applicable quarter in 2019 OR by showing annual tax forms that demonstrate a full-year reduction of 25% or more

One thing the Economic Aid Act does not include is a definition of “gross receipts” for determining the borrower’s revenue reduction. The Treasury and SBA guidance aligns the definition of gross receipts with that in the SBA’s regulation governing business size, which includes all revenues in whatever form received or accrued from all sources (sales of products or services, interest, dividends, rents, royalties, fees, or commissions), less any returns or allowances.

Note that first round PPP loans are NOT included in 2020 gross receipts, whether the loan has been forgiven or not.

Eligible Costs and Expenses for Loan Forgiveness
Both first- and second-draw PPP borrowers may have their loans forgiven if the funds are used on eligible costs. The costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities. However, second-draw eligible costs have been expanded and now include:

  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
  • Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
  • Covered operating expenditures, which refer to 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

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks.

Other Provisions
The new PPP program also includes a simplified one-page loan forgiveness application form for borrowers who receive $150,000 or less; restrictions on lending to publicly traded companies and businesses controlled (either directly or indirectly) by the president, vice president, head of executive departments, and members of Congress (or their spouses as defined by applicable common law); and provisions to enhance lending to minority, underserved, veteran, and women-owned businesses that include set-asides for new and smaller borrowers and borrowers in low- and moderate-income communities. The SBA also announced it will accept PPP loan applications only from community financial institutions for at least the first two days when the PPP loan portal reopens.

Help is Available Here
The second PPP program promises to be nearly as complex and complicated for borrowers as the first. It is important that you receive advice and guidance from someone who understands the requirements and nuances of the program, particularly if loan forgiveness is important to you. We can help, from the loan application through tracking expenditures and applying for forgiveness.

Stay tuned for announcement of Gray, Gray & Gray's free webinar on the second PPP program and how it could impact your organization.
In the meantime, please contact us at (781) 407-0300 with any questions or for assistance with your new PPP loan.