At the end of 2020, the Consolidated Appropriations Act, 2021 (CAA 2021) added a second draw of Paycheck Protection Program (PPP) loans (PPP Second Draw Loans).
The CAA, 2021 permits certain smaller businesses who received an initial PPP loan and experienced a 25% reduction in gross receipts to take a PPP Second Draw Loan of up to $2 million.
To qualify for a PPP Second Draw Loan, a taxpayer must have taken out an Original PPP Loan and 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.
Eligible businesses include for-profit businesses, specific non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural cooperatives.
Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the one year before the loan or calendar year 2019. However, borrowers in the hospitality or food services industries 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.
Like Original PPP loans, PPP Second Draw Loans may be forgiven for payroll costs of up to 60% and nonpayroll costs such as rent, mortgage interest, and utilities of 40%. Forgiveness of the loans is not included in income as cancellation of indebtedness income. The CAA, 2021 provides that expenses paid both from the proceeds of loans under Original PPP loans and PPP Second Draw Loans are deductible.
If you are thinking about applying for a 2nd draw (or would like to apply for an initial PPP Loan), we are here to help! Our firm can take pre-applications from businesses to complete your loan application and gather the required documents to submit. The SBA will soon start accepting applications, and having yours ready to go will help ensure timely funding. You can either use your current lender or apply through a FinTech lender with which we have an agreement. If you utilize our services for the loan process, we will also be able to streamline the forgiveness process.
