PPP2 – What You Need to Know
The U.S. Small Business Administration (SBA) recently provided guidance on the much anticipated second round of Paycheck Protection Program (PPP) loans, commonly dubbed PPP2. We’ll take a look at the details.
PPP2 is available to both first-time PPP borrowers and those applying for a second loan. To receive a second PPP loan, borrowers must satisfy the following requirements:
Revenue is defined as any amount 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. Net capital gains and losses, as defined and reported for federal tax purposes, are excluded from revenue. First draw PPP proceeds are also excluded from the definition of revenue.
SBA will also provide an annual revenue testing option to determine eligibility. If the borrower was in operation for the entirety of 2019, they may determine revenue decline by comparing 2020 and 2019 annual revenue. However, this option is only available if 2019 and 2020 income tax return copies are submitted to substantiate the revenue decline.
For second draw loans of $150,000 or less, the borrower will not be required to submit documentation of revenue decline upon application but will be required to submit this information when applying for loan forgiveness. Loan amounts above $150,000 will require revenue decline documentation at time of application. This documentation may include relevant tax forms or a copy of quarterly income statements or bank statements. Regardless of loan amount, we advise documenting revenue decline on the front end.
For first and second draw loans, the loan amount will equal 2.5 times average monthly payroll costs for either calendar year 2019 or 2020 – borrower may choose. Borrowers who are not self-employed also have the option to use the prior 12-month period beginning on the date the loan is made. Borrowers in the hotel and restaurant industry (NAICS code beginning with 72) will be permitted to use 3.5 times average monthly payroll costs to figure their loan amount. The total loan amount will be capped at $2 million.
Payroll cost documentation requirements will mirror those under PPP1. However, no additional documentation will be required if the borrower uses the same lender and payroll costs are identical to those used to apply for the first PPP loan.
PPP2 also allows borrowers to request modifications to their first round PPP loans. Borrowers who did not receive loan forgiveness by December 27, 2020, may reapply for a first draw loan if they previously returned some or all of the proceeds. Borrowers may also request to modify their first loan amount if they did not accept the full amount for which they were eligible.
The deadline to apply under PPP2 is March 31, 2021. SBA announced recently that certain community financial institutions may begin accepting applications for first draw loans on January 11, 2021 and second draw loans on January 13, 2021. According to SBA, PPP2 will open to all lenders shortly after these dates. SBA has also released new application forms and summaries: Form 2483 (First Draw Summary) for first draw loans and Form 2483-SD (Second Draw Summary) for second draw loans.
Those applying for a second PPP loan are not required to have submitted a loan forgiveness application for their first PPP loan. The borrower will certify they have used the full amount of the first PPP loan on eligible expenses.
Borrowers applying for a second PPP loan are still required to certify that current economic uncertainty makes the loan necessary to support ongoing operations. We recommend contemporaneously documenting the factors that make the loan necessary.
Spending and Forgiveness
The eligible covered period to spend PPP2 funds begins on the date loan proceeds are received and may span any period between 8 and 24 weeks.
Eligible covered period expenses will remain the same as PPP1, with the addition of the following items:
The 60% payroll requirement and penalties for pay and full-time equivalent employee (FTE) reduction continue to apply to both first and second draw PPP loans.
New legislation created a simplified loan forgiveness application for loans of $150,000 or less. PPP2 borrowers may avail themselves of this streamlined process when seeking loan forgiveness.
Need help with PPP2? We have the resources to guide you through the process. Please give us a call.