On January 19, 2021, all authorized lenders can begin making Paycheck Protection Program ("PPP") loans again. This includes first draw loans for eligible borrowers who have not previously received PPP loans and second draw loans for eligible borrowers who received PPP loans previously and have spent all the proceeds from the initial loan on allowable expenses. The eligibility requirements for first draw PPP loans have remained largely unchanged.
The second draw PPP loans were authorized in the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (the "Economic Aid Act"). Our previous article related to the PPP provisions of that act can be found here. On January 6, the Small Business Administration ("SBA") released the Interim Final Rule on Second Draw Loans (found here), which provides some additional guidance regarding the second draw loans. The new PPP loans look very similar to the first round, as most conditions associated with the program have not changed, but add some additional eligibility requirements.
In order to be eligible for a second draw loan, in addition to the certifications required for first draw PPP loans, including the certification that the loan is necessary to support their ongoing operations, an eligible second draw borrower whose loan amount will be in excess of $150,000 will also need to demonstrate a 25% reduction in gross receipts simply by comparing one quarter in 2020 with a corresponding quarter in 2019. This requirement does not apply for loan amounts of $150,000 or less. The January 6 SBA guidance also provides that a borrower can show a 25% drop in gross receipts for the whole year 2020 as compared to 2019. The January 6 Interim Final Rule defines "gross receipts" as including "all revenue in whatever form received or accrued (in accordance with the entity's accounting method) from whatever source, including sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances." Gross receipts do not include the borrower's first draw PPP loan or any transactions between affiliated entities. It is also of note that gross receipts of a borrower must be calculated including gross receipts of all of the borrower's affiliates, determined using the same affiliate rules applicable to the 500-employee determination for first draw PPP loans.
Second draw PPP loans are limited to companies with a maximum of 300 employees, and the same affiliate rules applicable to first draw PPP loans apply to this calculation as well. There is an exception (similar to the exception in the first draw program) for those companies having an NAICS code of 72 with multiple office locations—if each location is a separate business entity and employs not more than 300 employees, then each business entity can apply for a second draw PPP loan regardless of the affiliation rules. For second draw PPP loans, this exception is also expanded to include news organizations. The second draw program also excludes certain types of potential borrowers, including borrowers who did not receive a first draw PPP loan (they can still apply for first draw PPP loans, however), businesses engaged in political activities or lobbying, entities organized under Chinese law, certain registered foreign agents, borrowers who will receive a grant for shuttered venue operators under the Economic Aid Act, certain businesses owned by members of Congress, members of the Executive Branch (including the President and Vice President) and their spouses, and publicly traded companies.
Second draw PPP loans are also more limited in size than the first draw loans. Whereas a borrower could borrow up to $10,000,000 for a first draw PPP loan, with a limitation that a single corporate group can borrow no more than $20,000,000, for second draw loans, the size limit is $2,000,000 for a single borrower and $4,000,000 for a single corporate group. The previous loan size limitations do continue to apply to first draw PPP loans.
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