The Second Draw PPP Loan rules are out!

But first a little word on what PPP is and who it is for. 

Background: The Paycheck Protection Program (PPP) is the US government’s signature pandemic aid program for small businesses. It was created under the CARES (Coronavirus Aid, Relief and Economic Security) Act to ease the economic impact of the global coronavirus pandemic. 

The PPP was designed to provide businesses with resources to maintain payroll or hire back laid off employees. Funds can also be used to pay interest on mortgages, rent, or utilities.

To date, the PPP program has distributed $525 billion to small businesses across the US. The second draw is intended to offer greater flexibility to small businesses in how they use the money and ease up the forgiveness process. 

What’s new: Under the Second Draw rules, loans up to $2 million are available for businesses that have used funds in their Round 1 or Round 2 of First Draw loan. Also, 100% of your loan could be forgiven if you follow the guidelines. 

What you need to know:

1. General:

• You are eligible for a Second Draw PPP Loan only if you have 300 or fewer employees and experienced a revenue reduction in 2020 relative to 2019
• If you received First Draw PPP Loan you must have used it or will have it used before the Second Draw 

2. Revenue Reduction:

• You must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019 comparing your quarterly gross receipts for one quarter in 2020 with the gross receipts for the corresponding quarter of 2019.  E.g: Q4 2019 vs Q4 2020 – must reflect a revenue decrease of 25% or greater.

• The IFR specifies that 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. E.g: do not include the forgiveness amount in your gross receipts.

3. Calculation:

Most rules from First Draw PPP Loan apply to the Second Draw PPP Loan including payroll calculations. However, if you have been assigned a NAICS code beginning with 72 and have less than 500 employees then the maximum loan amount is equal to three-and-a-half (3.5) months of payroll costs rather than two-and-a-half (2.5) months.

4. Documentation:

• The documentation required to substantiate an applicant’s payroll cost calculations is generally the same as the documentation required for the First Draw PPP.

• For loans with a principal amount greater than $150,000, you must also submit documentation adequate to establish that you have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. Such documentation may include relevant tax forms, including annual tax forms. If relevant tax forms are not available, quarterly financial statements or bank statements. 

• For loans with a principal amount of $150,000 or less, such documentation is not required at the time you submit the application for a loan, but must be submitted on or before the date you apply for loan forgiveness, as required under the Economic Aid Act.

What you should do right now:

1. Reach out to your bank/lending institution and make sure they are taking part in the second round of PPP application (not all lenders are participating second time around).

2. Make sure you qualify (according to the criteria above).

3. Have your documents ready and be prepared to apply as soon as the application window opens.

4. For those of you that would like the document with complete detailed rules, I can send the PDF across in a DM. 

Most importantly, if you are struggling with questions, clarifying your specific circumstances or need help with the calculations, you shouldn’t struggle alone! I am only a message away. 

This is an amazing opportunity for small businesses that have suffered already enough in the aftermath of the pandemic. I hope this article sheds a bit of light on the new rules and helps as many business owners as possible to reach this lifeline support. 

If you are struggling with questions, clarifying your specific circumstances or need help with the calculations, you shouldn’t struggle alone! I am only a message away.