On December 27, 2020, the Consolidated Appropriations Act, 2021 (“the Act”) was signed into law. The Act includes several modifications and additions to the Paycheck Protection Program (PPP). As anticipated, the SBA has released two new Interim Final Rulings (IFRs) and two new application forms. The first IFR consolidates previously issued PPP guidance and IFRs, as well as clarifies the impact of the Act on the existing PPP and First Draw PPP Loans (“Consolidated IFR”). The second IFR focuses solely on Second Draw PPP Loans and provides new guidance for potential borrowers. Below is a summary of key aspects of the Second Draw PPP IFR, noting that additional guidance and clarifications from the SBA may impact the provisions listed below.

• Loan terms and provisions will be the same as the First Draw PPP Loans, including a five-year term, 1% interest, no collateral and no guarantees.
• Second Draw PPP Loans are available through March 31, 2021, subject to availability of funds.
• The SBA has released a new Form 2483-SD that Second Draw PPP Loan applicants should complete when applying.
• The SBA will begin accepting Second Draw PPP Loan applications starting on Wednesday, January 13, 2021.
• Borrower must attest that they have used or will use First Draw PPP Loan funds on eligible expenses before receiving a Second Draw PPP Loan, including any increase received under the provisions of the Consolidated IFR. There is no explicit requirement to file for and receive forgiveness prior to obtaining a Second Draw PPP Loan.
• Borrower will not receive a Second Draw PPP Loan if their First Draw PPP Loan remains under review by the SBA; in these instances, the SBA will expeditiously complete their review and process the Second Draw PPP Loan if the review is resolved favorably for the borrower.
• Applicants are generally eligible for a Second Draw PPP Loan if, together with their affiliates, they employ no more than 300 employees and, together with their affiliates, have experienced at least a 25% decline in gross receipts in any quarter during 2020 compared to the same quarter in 2019.
  • Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including: Sales from products or services, Interest, Dividends, Rents, Royalties, Fees, Commissions, Reduced by returns and allowances
    • Excludes any capital gains/losses
    • Excludes sales tax if included in gross income
    • Excludes any PPP forgiveness income recorded for book purposes
  • Applicants have the option to use full year 2019 vs 2020 and submit tax returns to substantiate the decline in gross receipts.
  • Specific provisions exist on determining eligibility if the applicant was not in business for all of 2019.
  • Special rules apply if an entity or a segregable division was acquired or sold by the applicant during 2019 or 2020 and will impact the gross receipts assessment.
  • SBA rules state the following with respect to calculating gross receipts:
    • The federal income tax return and any amendments must be used
    • When a concern has not filed a federal income tax return in the period of measurement, receipts may be obtained using any other available information, such as the concern’s regular books of account or audited financial statements
  • For businesses with more than one physical location with an NAICS code beginning with 72, the 300-employee limit is per physical location.
• SBA Affiliation rules apply in determining eligibility in the same manner as First Draw PPP Loans. These are waived under certain circumstances.
• Certain business types are not eligible, such as entities involved with illegal activities and businesses primarily engaged in political or lobbying activities.
• Entities that have received or will receive a Shuttered Venue Operator Grant are not eligible.
• Publicly traded companies are not eligible.
• The Second Draw PPP Loan amount is determined by taking 2.5 times the average monthly payroll costs, using either the calendar year 2019, 2020, or the 1-year period prior to applying for the loan, capped at a maximum loan amount of $2,000,000.
  • There are specific rules in calculating the amount for seasonal employers, applicants that did not exist as of February 15, 2019, self-employed individuals, and partnerships.
  • Entities with an NAICS code beginning with 72 are eligible for an amount up to 3.5 times the average monthly payroll costs.
• Businesses that are part of a single corporate group cannot receive more than an aggregate amount of $4,000,000.
• Second Draw PPP Loan applications will contain the following documentation requirements:
  • If an applicant wishes to use the same 2019 payroll calculations/data as submitted with its First Draw PPP Loan and is using the same lender, no additional payroll documentation is required.
  • Otherwise the same payroll documentation requirements apply as First Draw PPP Loan applications, which include payroll records such as 941s, state quarterly wage unemployment insurance tax reporting forms, or equivalent payroll processor records, along with evidence of retirement contributions and employee group insurance payments (if these amounts are being considered as part of eligible payroll expenses).
  • For loans over $150,000, the applicant must provide substantiation for the revenue decline, which may include relevant tax forms, quarterly income statements, or bank statements.
  • For loans $150,000 or less, the revenue decline documentation does not need to be submitted until forgiveness is requested or the SBA specifically requests from the borrower.
• While additional guidance on the forgiveness process for Second Draw PPP Loans has yet to be released, the IFRs indicate the forgiveness process will be similar to First Draw PPP Loans. This includes a requirement that the amount forgiven must consist of at least 60% of payroll costs.
• The covered period for Second Draw PPP Loans will begin on the date the borrower receives the funds and ends on any date selected by the borrower between 8 and 24 weeks.
• Loans of $150,000 or less will be eligible for a simplified forgiveness process.

Your professional service team at Miller, Cooper & Co., Ltd. is here to help you understand and navigate the ever-changing landscape of the PPP. Please contact a member of your service team for additional guidance and assistance.