The Treasury Department and the Small Business Administration (“SBA”) have announced that they will begin accepting applications for new Paycheck Protection Program (“PPP”) Loans from some borrowers beginning Monday, January 11th. The Second Draw Application can be found here. There is also a revised application for First Draw PPP Loans which can be found here.
Community financial institutions that service minority and women-owned businesses will be able to make loans to first-time PPP borrowers beginning Monday, January 11 and second-time PPP borrowers beginning Wednesday, January 13. According to the recently released SBA guidance, other borrowers and lenders will be able to participate in the program “shortly thereafter.” The application deadline for all second draw PPP loans is March 31, 2021.
The SBA released three documents in addition to the Second Draw Application:
- A consolidation of the rules for first-time PPP borrowers, which includes changes based on the recently passed Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (part of the Consolidated Appropriations Act of 2021) (“Economic Aid Act”)
- Guidelines for the Second Draw PPP loans for businesses that already received a PPP Loan
- And a document called “Guidance on Accessing Capital for Minority, Underserved, Veteran and Women-Owned Business Concerns”
Items of note:
- Borrowers may not get a Second Draw PPP Loan until they have used their First Draw PPP Loan for authorized purposes
--This includes any additional First Draw funds they may now apply for under the provisions of the Economic Aid Act
- Average monthly payroll costs may be based on calendar year 2019 or calendar year 2020
- Second Draw Loan borrowers may have no more than 300 employees.
--The same SBA affiliation rules used in the First Draw Loan program apply
- The 25% revenue reduction is calculated by comparing gross receipts of any calendar quarter in 2020 with the same calendar quarter in 2019
--Borrowers whose loan request is less than $150,000 will not be required to submit documentation of this reduction with their loan applications but will be required to do so when they apply for forgiveness
--There is no guidance yet as to what documentation other borrowers will be asked to provide except that a borrower that was in operation for all four quarters in 2019 may submit copies of its tax returns documenting a decline in ANNUAL receipts of 25% or greater in 2020 compared to 2019
--According to the SBA guidance, gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source
--The computation is total income plus cost of goods sold reduced by returns and allowances and excluding net capital gains or losses
Other PPP Loan Program changes:
- Certain business leagues, chambers of commerce, real-estate boards, boards of trade, housing cooperatives and direct marketing organizations are now eligible borrowers
- First Draw PPP borrowers who returned funds or did not get the maximum amount of loan may request a modification of their loan
--While the answer is still not entirely clear, it appears that those who did not borrow in the original first round of PPP Loans in 2020 may be eligible to apply for a loan now
- Additional expenses are eligible for forgiveness, including those relating to operating expenses, property damage, supplier costs and worker protective equipment, among others
What to do while you’re waiting:
- Find out if your original lender is going to participate again
--The SBA has suggested that Second Draw Loan borrowers apply through their First PPP Loan lender
--If you use the same payroll periods to compute the loan amount, no additional payroll documentation will be required
--If not, start looking for another lender now
- Start documenting revenue reduction
- If you haven’t already applied for forgiveness on your First Draw PPP loan, make sure you can document that you used the funds for authorized purposes
- Make sure that nothing has changed with regard to your eligibility
--Ownership changes – Who owns the business? Are they still eligible owners?
--Number of employees (remember it’s now 300 rather than 500, and the same affiliation rules apply)
We will continue to update you as additional guidance is released. Please join us on January 19, when Friedman will host a webinar, “Mapping Out the New Stimulus Bill,” unpacking key provisions of the Consolidated Appropriations Act – Click here to register. In the meantime, please contact your Friedman LLP advisor with any questions.