The U.S. Small Business Administration (SBA) and the Department of Treasury issued interim final rules (IFRs) which serve as guidance for the second round of the Paycheck Protection Program (PPP), also referred to as “PPP2”, as financial institutions begin accepting borrower applications for the re-opening of the PPP.
Here are the eligibility requirements for the PPP2 that all small businesses should know:
- The last day to apply for and receive a PPP2 loan is March 31, 2021.
- Borrowers are eligible for a PPP2 loan in the amount of up to 2.5 times its average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019 or 2020. Borrowers with NAICS line of business code of 72 (motels and restaurants), can receive up to 3.5 times its average monthly payroll costs. The maximum loan amount is capped at $2 million.
- The borrower must have 300 or fewer employees. The SBA Affiliate rules still apply when calculating the number of employees.
- The borrower must have used or will use the full amount of their first PPP loan on or before the expected date for the second PPP loan to be disbursed to the borrower. The guidance further clarifies that the borrower must have spent the full amount of the first PPP loan on eligible expenses.
- The borrower must have experienced a revenue reduction of 25% or more in all or part of 2020 compared with all or part of 2019. For loans greater than $150,000, the borrower must provide documentation to the lender substantiating the decline in gross receipts. This is calculated by comparing gross receipts in any 2020 quarter with an applicable quarter in 2019, or a borrower that was in operation for all four quarters of 2019 can submit copies of its annual tax forms that show a reduction in annual receipts of 25% or greater in 2020 compared with 2019.
- Forgiven first-draw PPP loans are not included in the 2020 gross receipts.
- As with the first round of the PPP, the costs eligible for loan forgiveness in the revised PPP2 include payroll, rent, covered mortgage interest, and utilities. In addition, the following costs are now eligible:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating expenditures, which refer to payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
In addition to the changes to borrower eligibility, there are also additional lender requirements with respect to this re-opening of PPP funding.
- Lenders that made PPP loans in 2020 will not need to re-register for this new PPP round. Any lender that did not participate in 2020 must register using SBA form 3506.
- Every lender making PPP or PPP2 loans must register on the government website SAM.gov. Lenders must register on SAM.gov by 30 days after making their first PPP loan disbursement after December 27, 2020.
- Once the lender receives an application, the lender must complete a “First Draw” or a “Second Draw” lender guaranty form, as applicable.
- The SBA is not using the E-Tran System for this round of PPP lending. The SBA has created a new web-based lending platform.
- The SBA has said that lenders will not get an SBA loan number right away this round. It could take up to several days to get the SBA loan number, as the SBA will be doing some initial security checks on each borrower to help ensure the integrity of the PPP lending process.
With the PPP2 reopening soon, now is the time to review your financial situation as a borrower or your current processes and procedures as a lender. FMJ will continue to follow this developing situation. If you have questions or need assistance, FMJ’s PPP Loan Application and Audit Team can help.
Please contact Bob Fafinski at robert.fafinski@fmjlaw.com or Jim Seifert at james.seifert@fmjlaw.com. In addition, you can find some frequently asked questions about the PPP and PPP2 on our website here.
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