PPP Second Draw Update

The SBA pushed out guidance on the new “PPP Second Draw Loans” yesterday. While we still don’t have sight of the application and the “portal” isn’t open for banks to submit loan packages we do have more answers – not all, but more.

The guidance came in the form of two interim final rules (IFRs) – If you’re counting, we’re approaching nearly 30 Interim Final Rules, along with over 11 pages of FAQs. Still makes me smile every time I hear “interim final” …

  • The 82-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260.
  • The 42-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan (This is one that 99% of the businesses we work with care about).
  • SBA further added that an additional IFR on loan forgiveness as well as new FAQs are forthcoming.

So here is the executive summary on the “PPP Second Draw Loans”:

  • The IFR emphasizes that the second draw loans are generally subject to the same terms and conditions as the first round (and the new stuff above).
  • For those that received a first draw PPP loan the IFR states that the funds must have been properly utilized, or will be utilized, prior to funding of a second draw.
  • The SBA defines gross receipts as “All revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees or commissions, reduced by returns or allowances.”
    • Any forgiveness amount of a First Draw PPP Loan that a borrower received in calendar year 2020 is excluded from a borrower’s gross receipts.
  • The 25% revenue reduction is the new twist, and you can calculate it in a few ways. The most direct is that you can compare your quarterly gross receipts for one quarter in 2020 with gross receipts for the corresponding quarter of 2019. Here is the example they use in the IFR: a borrower with gross receipts of $50,000 in the second quarter of 2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40 percent between the quarters and is therefore eligible for a Second Draw PPP loan.
  • With respect to calculating borrowers’ payroll costs, the IFR allows applicants to use calendar year 2019 or 2020 (as opposed to the twelve-month period prior to when the loan is made). It further addresses that if a borrower is applying through the same bank as they did their first draw, and they are using 2019 payroll, then they shouldn’t have to provide the documentation again.
  • The IFR provides that borrowers are limited to receipt of one Second Draw PPP Loan, no greater than $2 million.
  • As provided for in the Economic Aid Act, for loans with a principal amount of $150,000 or less, no documentation is required at the time of application and can instead be provided with the forgiveness application or, if forgiveness is not sought, upon SBA’s request (who wants to bet that the banks are still going to want a ton of paper?).

These are the just the highlights – more information will be forthcoming, and the actual application and the banks interpretations thereon are really going to write the story that we all have to read and live with.

For now, the news is welcomed… overall, nothing has been made more complicated than promised, the 25% revenue reduction criteria seems straightforward, and having a choice of payroll (2019 or 2020) could lead to the most advantageous outcome. Further, Second Draw PPP Loans are also eligible for loan forgiveness on the same terms and conditions as First Draw PPP Loans. So, for the vast majority of borrowers (those of you borrowing less than $150,000), you can apply for forgiveness with a one-page attestation, which should be out in the next few weeks.

Keep an eye out for additional updates – we’re paying attention and will keep them coming.