PPP Loans Round 2 Updates

Certain qualifying PPP borrowers that employ less than 300 employees and demonstrate 25% or greater reductions in gross receipts in any calendar quarter in 2020 compared to an equivalent calendar quarter in 2019 are going to be ready to obtain a forgivable “second draw” PPP loan (a “Second Draw PPP Loan”) of up to the lesser of $2,000,000 and 2.5 times (or 3.5 times surely borrowers) their average monthly payroll costs. A borrower can only receive one Second Draw PPP Loan. Check the PPP loan update.

Eligibility

In order to be eligible for a Second Draw PPP Loan, additionally to satisfying the first PPP loan eligibility criteria, the person or entity must be an “eligible entity,” which is usually defined within the Act as a business or nonprofit organization that (i) employs less than 300 employees (subject to exceptions described below) and (ii) can demonstrate not but a 25% reduction in gross receipts during any calendar quarter in 2020 compared to an equivalent calendar quarter in 2019. additionally , the eligible entity must have received an initial PPP loan, and on or before the expected date on which the Second Draw PPP Loan is disbursed to the eligible entity, the eligible entity must have used, or will have used, the complete amount of its initial PPP loan.

The Act excludes certain PPP borrowers from Second Draw PPP Loans, including:

certain business concerns that are ineligible for a loan under existing SBA regulations;

businesses primarily engaged in lobbying or other political activities;

businesses (i) owned by an entity created in or with significant operations in China that owns or holds, directly or indirectly, not but 20% of the economic interest of the business or (ii) with a director that's a resident of China; and

recipients of a shuttered venue operator grant under Section 24 of the Act.

A business with quite one physical location is eligible for a Second Draw PPP Loan if it's an accommodation or food service business (entities with a NAICS code beginning with 72) or an eligible news agency that has no quite 300 employees per location and meets the gross receipts requirements for eligible entities.

While SBA’s Affiliation Rules apply to an entity’s eligibility determinations, the waiver of those rules for initial PPP loans continues to be used for purposes of determining an entity’s eligibility for a Second Draw PPP Loan, as long as the utmost number of employees is 300 employees.

Note that an eligible entity applying for a Second Draw PPP Loan remains required to form most of the certifications required in reference to applying for PPP loan, including the “necessity certification” discussed in our prior alerts here and here.

Maximum Loan Amount

The maximum amount of a Second Draw PPP Loan is usually the lesser of $2,000,000 and 2.5 times the borrower’s average monthly payroll costs, with special rules for seasonal employers, entities that didn't exist during the 1-year period preceding February 15, 2020, and accommodation or food service business.

Forgiveness

Except as otherwise laid out in the Act, Second Draw PPP Loans are forgivable within the same manner as initial PPP loans. For purposes of Second Draw PPP Loans, the term “covered period” has the meaning given under the PPP, except that it's extended to March 31, 2021. However, the Act redefines the term “covered period” for purposes of forgiveness of PPP loans made after (but not before) the date of passage of the Act to mean the amount beginning on the date of the disbursement of the PPP loan and ending on a date selected by the PPP borrower that happens during the amount starting 8 weeks after such date of disbursement and ending 24 weeks after such date of disbursement. a minimum of 60% of the forgiveness amount must be Eligible Payroll Costs, as is that the case with initial PPP loans.