PPP First Draw and Second Draw Important Information

On Friday, January 8th the SBA issued the new Form 2483-SD Paycheck Protection Program (“PPP”) Second Draw Borrower Application, along with an updated Form 2483 PPP Borrower Application Form Revised January 8, 2021. Along with the applications, a top-line overview document for the first and second PPP draw loans were issued.

The Second Draw PPP loan allows eligible borrowers that previously received a PPP loan to apply for a second loan with the general loan terms as their first PPP loan. The second draw can be used to help fund payroll costs including benefits, mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.

Taxpayers that did NOT previously receive a PPP loan, may now apply for a PPP loan using the original criteria (Original PPP Loan). Additionally, taxpayers that repaid all or a portion of their initial PPP loan may re-apply for the amount repaid using the same criteria, provided that they have not applied for forgiveness on that original PPP loan.

Paycheck Protection Program Second Draw Loans. The CAA, 2021 permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP Second Draw Loan of up to $2 million.

Eligible entities. In order to qualify for a PPP Second Draw Loan, a taxpayer must have taken out an Original PPP Loan. In addition, prior PPP borrowers must meet the following conditions to be eligible for the PPP Second Draw Loans:

• Employ no more than 300 employees per physical location;
• Have used or will use the full amount of their first PPP loan; and
• Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020. In addition, if a taxpayer was in business for all of 2019, the taxpayer may use the annual gross receipts method for the test.
• Loan necessity criteria still applies, pending further guidance.
• In addition, the borrower does not necessarily have to use the same lender for the PPP Second Draw Loan that they used with the Original PPP loan.

Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.

Loan terms. Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or in calendar year 2019. However, borrowers in the hospitality or food services industries (NAICS code 72) may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.

Gross receipts and simplified certification of revenue test. Taxpayers who borrow PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue (gross receipts) loss requirement.

Loan forgiveness. Like Original PPP loans, PPP Second Draw Loans may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as such as rent, mortgage interest and utilities of 40%. Forgiveness of the loans is not included in income as cancellation of indebtedness income.

Deductibility of expenses paid by PPP loans. The CARES Act was silent on whether expenses paid with the proceeds of PPP loans could be deducted. IRS took the position that these expenses were nondeductible. The CAA, 2021 provides that expenses paid both from the proceeds of loans under Original PPP loans and PPP Second Draw Loans are deductible.

Contact your HM&M advisor if you need assistance with determining you are eligible for the PPP Second Draw loan.

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