ELIGIBILITY FOR BORROWERS UNDER THE PPP SECOND DRAW LOAN PROGRAM

By Matthew M. Stanley, Associate

The Department of Treasury and Small Business Administration (SBA) began a new Payroll Protection Program (PPP) in mid-January that will remain open to applicants through March 31, 2021.

The new program is part of Congress’s $900 billion COVID-19 relief bill called the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act), signed into law on Dec. 27, 2020. Section 311 of the Economic Aid Act provides for the SBA’s new PPP program, the “Paycheck Protection Program Second Draw Loans” (Second Draw Program).

Although many of the rules for the Second Draw Program are the same as the first program administered in 2020, the SBA does make some changes for businesses who had previously borrowed PPP funds under the first program and are applying for additional funds under the new program. Potential borrowers with less  than 300 employees will be eligible for a “second-draw” of proceeds of up to $2 million, provided they have used all of their previously borrowed PPP funds on eligible expenses by or before the expected distribution of their Second Draw fund and have experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019.

In determining eligibility for the Second Draw, an applicant’s revenue reduction is calculated by comparing gross receipts in any 2020 quarter with the corresponding quarter in 2019.  A borrower that was in operation for all four quarters of 2019 may instead choose to compare 2019 annual tax forms that show a reduction in annual receipts of 25% or greater from 2019 to 2020.

To determine an applicant’s  gross receipts, the IFR points to 13 C.F.R. Section 121.104, which provides that gross receipts include “all revenue in whatever form received or accrued from whatever source, including from the sale of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.” It’s also important to note that the SBA’s guidance states that gross receipts do not include any forgiveness amount from an applicant’s initial PPP loan.

From its creation under the CARES Act to the Second Draw under the new Economic Aid Act, the PPP loan program has continually changed and been modified by guidance in the form of over two dozen IFRs and Frequently Asked Questions (FAQs) issued by SBA and Treasury. At Nicola Gudbranson & Cooper, LLC we continually monitor these changes and are able to assist our clients in navigating PPP and the Second Draw Program rules, as well as other programs during the challenging environment created by COVID-19.

For more information about how NGC can assist with navigating the PPP program, please contact Matt at: [email protected].