Second Draw PPP Eligibility & Limitations

SECOND-DRAW PPP LOANS

The Second Draw for PPP is now available.  We’ve outlined important information below to help you with this process.

This post will guide you on determining:

1. Your eligibility
2. Promises & certifications necessary
3. Your loan limits
4. Documents you need to gather
5. Which expenses are covered
6. Forgiveness information.

Background:

On January 6, 2021 the SBA issued its interim final rule which outlines the key terms of PPP Second-Draw Loans.  Below is a summary of the key terms of the program, including definitions, eligibility  criteria, maximum loan limits, documentation requirements, and answers to certain FAQ’s.  ADC has reviewed the key provisions of the program and drafted the summary below.  Please consult your account manager with further questions on eligibility or to assist with the application process.

Additionally, the SBA has reserved the initial two days of the application period to specifically service minority, underserved, veteran and women-owned business concerns.  Applications from community financial institutions which represents the prioritized group will be processed in advance of the general application pool, assuming those applications are received by the SBA during the first two-days when the PPP loan portal reopens.

Please let us know if we can help.

Let’s get into the details…

Eligible Second-Draw Borrowers:

Eligibility for second-draw loans is limited to the following:

• In general, any business concern, independent contractor, eligible self-employed individual, sole proprietor, or nonprofit organization, other than those specifically excluded.
• Borrowers with 300 or fewer employees and experienced a revenue reduction in 2020 relative to 2019.
• Borrowers that received a First Draw PPP Loan, and used, or will use, the full amount of the first draw PPP loan on or before the expected date on which the Second-draw PPP loan is disbursed to the Borrower. The full amount of the first-draw PPP Loan must have been used toward eligible expenses.
• Borrowers are considered to have experienced a revenue reduction if one or more of the following conditions exist:
  1. There was a 25% or greater
     reduction in the borrower’s quarterly gross receipts for one quarter in 2020 when compared to the borrower’s gross receipts for the corresponding quarter of 2019.
  2. The borrower was in operation for all four quarters of 2019 and the annual gross receipts of the borrower during 2020 are at least 25% lower than the annual gross receipts in 2019.
  3. Other conditions may be applicable to borrowers in operation for only part years.
• Certain categories of prohibited borrowers exist.
• Borrowers that have temporarily closed or suspended its business remain eligible for a second-draw PPP loan.
• Unresolved forgiveness applications from the first-draw do not restrict a borrower from obtaining a second-draw PPP loan.

Certifications:

The application requires applicants to certify to several statements, including, but not limited to, the following:

• Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
• The Applicant has realized a reduction in gross receipts in excess of 25% relative to the relevant comparison time period. For loans greater than $150,000, Applicant has provided documentation to the lender substantiating the decline in gross receipts. For loans of $150,000 or less, Applicant will provide documentation substantiating the decline in gross receipts upon or before seeking loan forgiveness for the Second Draw Paycheck Protection Program Loan or upon SBA request.
• The funds will be used to retain workers and maintain payroll; or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.

Eligible Second-Draw Loan Amounts:

Qualifying 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 2019 or 2020, at the election of the borrower.  Certain borrowers with NAICS codes starting with 72 (Accommodation and Food Services) may receive up to 3.5 times their average monthly payroll costs.  Borrowers are eligible for a maximum second-draw PPP loan of up to $2 million.

Average monthly payroll costs can be calculated based on either the twelve-month period prior to when the loan is made or calendar year 2019.

Documentation Requirements:

The documentation required to substantiate an applicant’s payroll cost calculations is generally the same as documentation required for First Draw PPP Loans.  However, if the applicant bases its loan amount request on 2019 payroll costs, and the same lender is used, no further payroll documentation will be required.   All second-draw loans will require the applicant to provide evidence of the 25% reduction in gross receipts, but only in the case of loans greater than $150,000 is the evidence to be received by the lender at the time of application.

The applicant must submit SBA Form 2483-SD.

Qualified Expenses:

Qualified expenses (for first and second-draw PPP loans) include payroll, rent, covered mortgage interest, and utilities. In addition, the following costs are now eligible:

• 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.

Forgiveness:

Forgiveness terms are consistent with the first-draw PPP terms. A new, simplified forgiveness application for loans less than $150,000 is expected to be released no later than January 20, 2021.

Start Right Now:

We encourage you to take action, you should start today. Here’s a good place to get the ball rolling…

1. Save and Print this form
2. Fill out as much as you can
3. Review your expenses
4. Make a list of missing items
5. Contact your accountant for what to do next

We hope this helps.