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Did You Miss Out on a PPP Loan? You’re Getting a Second Chance

The Senate and House of Representatives overwhelmingly passed a new $900 billion COVID-19 relief bill this week.  The President is expected to sign it into law.  The legislation, the Consolidated Appropriations Act, 2021, includes a second round of PPP loans for affected small businesses that did not receive a PPP loan the first time around.   Sometimes life gives you second chances. This Bill is one of those instances: businesses that previously received a PPP loan will be able to apply for a second loan under special circumstances. The second round of PPP loans for affected small businesses are referred to as “second draw loans” or PPP2 Loans.

Who Is Eligible?

Borrowers that did not receive a PPP loan the first time around and businesses that previously received a PPP loan.

First time borrowers:

  1. Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.

  2. Sole proprietors, independent contractors, and eligible self-employed individuals.

  3. Not-for-profits, including churches.

  4. Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

Previous PPP Borrowers:

Previous PPP Loan recipients may apply for another loan provided they:

  1. Have 300 or fewer employees.

  2. Have used or will use the full amount of their first PPP loan.

  3. Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

Under the 25% loss-of-revenue test, the small business will compare their 2020 quarterly revenue (gross receipts) against their first, second and third quarters of revenue in 2019. In order to qualify for a PPP2 loan, a business must be able to show a loss in revenue of 25% or more from at least one quarter of 2020 as compared to that same quarter in 2019. The bill also allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

How Much Can a Business Borrow from PPP2?

The new legislation allocates around $284 billion for the second round of PPP Loans. The loan limit is $2 million, and the amount a business will qualify for is determined by taking their average monthly payroll in 2019 and multiplying it by 2.5. The bill has a special calculation for restaurants and food businesses and provides those businesses a larger loan amount of 3.5 months of average monthly payroll. So, for example, if you had an average monthly payroll in 2019 of $100,000, then your small business would qualify for $250,000. If you were a restaurant or other qualifying food business, then you would qualify for $350,000.

Are the PPP2 Loans Forgivable?

Yes but the rules are slightly different than the first round of PPP Loans. The costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:

  1. Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.

  2. Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.

  3. Covered operating costs such as software and cloud computing services and accounting needs.

To be eligible for full loan forgiveness, PPP2 borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters the first PPP loans program had when it stopped accepting applications in August.

When Will Applications be Available?

Once signed into law by the President, which the White House has indicated is likely, the SBA and Treasury have been tasked with providing interpretive guidance and forms for the new forgiveness rules, as well as loan applications and guidelines for second draw PPP loan borrowers. We suspect that applications will be available by mid-January.


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