Welcome to the PPP Loan Program 3.0

On Monday, December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, which contains a $900 billion COVID-19 relief package that, along with many other initiatives, reauthorizes and modifies the Paycheck Protection Program (“PPP”).  The SBA released initial guidance for the reauthorized PPP on January 5, 2021 that can be found here Interim Final Rule 2021-0001.  Furthermore, the SBA is giving certain qualified businesses a second bite at the PPP program apple and those rules can be found here:  Interim Final Rule 2021-0002.  

Today’s post focuses primarily on the second draw program.  Subsequent posts will detail new wrinkles that first time PPP applicants need to know as well as some important changes to the SBA’s flagship 7(a) and 504 loan programs.

Second Draw PPP Loan Program in a nutshell:

·        A second round of PPP loans is now authorized for borrowers that have already received a PPP loan.  The second draw application SBA Form 2482-SD can be found here: Second Draw Application.

·        The second draw PPP program opens to borrowers with a soft launch the second full week of January, 2021.  Initially, applications will be accepted only from eligible borrowers in low- or moderate-income neighborhoods processed through certain community financial institutions.  These groups and institutions were mostly shut out of the first round of PPP loans in April 2020 and the SBA is trying to equalize access to them for this round.  For the vast majority of PPP second draw applicants, the PPP program will open to all other participating lenders shortly thereafter.

·        To qualify, a business must have 300 or fewer employees per physical location and must show that it experienced a revenue reduction of 25% or more.

·        Second draw PPP loans do not require collateral or personal guarantees.

·        The bank’s loan is fully guaranteed by the SBA.  The interest rate is fixed at 1% over a 5-year loan term.

·        PPP loans are forgivable, and borrowers may receive a loan amount of up to 2.5 times their average monthly payroll cost as defined in the loan application.

·        Payroll costs, rent, mortgage interest and utilities are covered costs.  In addition, program enhancements now allow borrowers in include certain operations expenditures, property damage expenses, supplier costs and worker protection costs.

·        The revenue reduction is calculated by comparing gross receipts in any 2020 quarter with the same (corresponding) quarter in 2019.  If the business was in operation in all four quarters of 2019, it can also compare full year 2020 results to 2019 results in order to determine if it experienced a 25% drop in annual income.  In doing so, the borrower can use tax returns to provide the required proof of its revenue reduction.

·        Seasonal businesses have specific requirements that are detailed in the final rule.

·        The borrower must have used, or will use, the full amount of its prior PPP loan proceeds on or before the expected date of disbursement of the second draw PPP loan.

·        Farm and ranch operations are eligible to apply.

·        If a business is using the same calendar year 2019 figures to substantiate the second draw PPP loan request that it used for its initial PPP loan request and is working with the same lender, additional documentation is not required because the lender already has the relevant information.

·        For loans with a principal greater than $150,000,the applicant must submit documentation adequate to establish its revenue reduction of 25%.  Such documentation may include tax forms, quarterly financials or bank statements.

·        For loans $150,000 and below, supporting documentation is not required at application time.  However, supporting documentation must be submitted on or before the date the borrower applies for loan forgiveness. Banks may require this information up front at the time of application, so a best practice would be to simply provide it at the time of application.

·        Enhancements to the program provide for a simplified forgiveness process for loans of $150,000 or less.  The SBA has yet to create the simplified forgiveness application form.  The agency is required to do so by January 20, 2021. We will post more information about this as it becomes available.

·        Borrowers should maintain all employment records associated with their PPP loans for four years and other records for three years in case the SBA initiates a review or audit.

 The preceding is provided to you as a summary of the PPP second draw program.  More details and the most up-to-date information can be found here: CARES Act Resources.   As more information becomes available, we will provide updates here as necessary.   If you have any questions regarding the above material or just need help navigating any part of the PPP loan process, SS&C Solutions can help.  For additional information please reach one of our advisors here:  SS&C Solutions.