Paycheck Protection Program Second Draw Loans
Updated as of 2:00 on January 11, 2021
On December 27, 2020, the President signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Act) into law. The Act allows for qualifying small businesses to participate in Paycheck Protection Program Second Draw Loans (PPP 2). Highlights of the Act and PPP 2 financing include the following:
- Borrowers that previously received a PPP loan in 2020 are eligible to apply for PPP 2 financing if they have or will use the full amount of the initial PPP loan for authorized purposes prior to the expected disbursement date of the PPP 2 loan. They must also satisfy certain other criteria. Borrowers are NOT required to have received forgiveness for the first loan prior to applying for the PPP 2 loan.
- PPP 2 Loans are generally subject to the same terms, conditions, and requirements as the original PPP loans with the following changes:
- Generally limited to businesses with 300 or fewer employees (or not more than 300 employees per location for businesses with multiple locations).
- The business must be able to substantiate a 25% or greater decrease in gross receipts in any quarter in 2020 compared to the same quarter in 2019.
- Gross receipts are generally your top line gross receipts as shown on applicable tax returns.
- Forgiveness of EIDL advances or initial PPP loans are not considered in the gross receipts computation.
- A business operating in all 4 quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual gross receipts of 25% or more in 2020 compared to 2019.
- Substantiation of the gross receipts decrease may include relevant tax forms, financial statements, or bank statements.
- Loan amounts are determined using similar calculations to the original PPP, but with maximum loan amounts of $2,000,000 (Cap of $4,000,000 for businesses that are part of a single corporate group).
- Expanded list of qualifying forgivable expenses including those related to worker protection, supplier costs, and property damage costs.
- Expanded borrowing limits for businesses in the hospitality and restaurant industries.
- PPP First Round Loans are also available for businesses and taxpayers that did not receive loans in the first round of funding. This includes changes for the following groups:
- 501(c)(6) organizations may qualify, subject to limitations based on the entity’s lobbying activities. Previously, 501(c)(6) organizations were not allowed to participate.
- Farmers and ranchers are eligible for loans, with a significant change in the calculation of their loan amount. Loans are now based on GROSS income (not net income as was originally required with the first round of funding).
- The deadline to apply for funding under PPP 2 is March 31, 2021.
- Borrowers will need to certify that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”
Please contact your MHCS advisor if you have any questions or need assistance with the PPP application or forgiveness process.