PPP Second Draw Loans – Here We Go Again

On December 27, 2020, President Trump signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) into law to provide continued assistance to individuals and businesses that have been financially impacted by the ongoing coronavirus pandemic. Among its provisions is an extension of the Paycheck Protection Program (PPP) created by the CARES Act, authorizing approximately $284 billion in additional federally backed loans to help small businesses weather economic hardships caused by the pandemic.

The new Economic Aid Act clarified several questions about the PPP loan process, and added new rules for borrowers applying for new PPP loans and seeking forgiveness for previous PPP loans.

On January 6, 2021, the U.S. Small Business Administration (SBA) and Treasury issued new guidance for the new PPP loan. The guidance included two interim final rules (IFRs); (1) Business Loan Program Temporary Changes; Paycheck Protection Program as Amended; and (2) Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans.

The new PPP loans will be available on a first come, first served basis, and are expected to be exhausted quickly. The Economic Aid Act extended the time of the PPP to March 31, 2021. New borrowers and those who already received a PPP loan may be eligible for a PPP “Second Draw” Loan of up to $2 million. Borrowers should note that some of the eligibility requirements have changed, and because of this, some borrowers who received a PPP loan the first time around in the “First Draw”, may not be eligible for a PPP Second Draw Loan.

The Economic Aid Act established a special procedure in the bankruptcy process if the Administrator determines that certain small business debtors are eligible for PPP loans. It requires court approval for PPP loans to these debtors and requires any such loan be given a superpriority claim in the bankruptcy process.[1] The Economic Aid Act also allowed more flexibility for the SBA to accept documentation beyond those enumerated in the CARES Act to determine eligibility for sole proprietors and the self-employed.

PPP Second Draw Loans are generally subject to the same terms and conditions as First Draw PPP Loans. These include, but are not limited to, the following terms:

  • No collateral will be required.
  • No personal guarantees will be required.
  • All PPP loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower to determine the borrower’s eligibility and use of PPP loan proceeds.

The Economic Aid Act applied the same affiliation rules and waivers to PPP Second Draw Loans, added a waiver for certain eligible news organizations, and made adjustments to reflect the reduced size requirement for PPP Second Draw Loans.[2]

Summary of PPP Second Draw Loans:

  • Maximum loan amount is $2 million
  • PPP Loan amount is still based on 2.5 times the average monthly payroll costs
    • 3.5 times average monthly payroll for companies in the Accommodations and Food Services Industry (NAICS code beginning with 72)
  • At least 60% of the PPP funds must be used on payroll expenses to get full forgiveness
  • Extended existing safe harbors on restoring FTE and salaries and wages.
    • Applied the rule of reducing loan forgiveness for borrowers who reduce the number of employees retained and reduce employees’ salaries in excess of 25%
  • Any PPP loan amounts not forgiven will have a 5-year maturity date
  • Interest accrues at 1.0% per annum[3]
  • Additional eligible payroll expenses such as group life, disability, vision, and/or dental insurance
  • Additional eligible non-payroll expenses such as operational costs, property damage costs, supplier costs, and worker protection expenditures
  • Borrower may choose a covered period between 8 and 24 weeks
  • Simplified forgiveness process for PPP loans of $150,000 or less
  • An eligible business concern may only receive one PPP Second Draw Loan

A Business Concern may be eligible for a PPP Second Draw Loan if it meets the following criteria:

  • Employs not more than 300 employees
  • Have used or will use the full amount of its first PPP loan on or before the expected distribution date of the PPP Second Draw Loan
  • Can demonstrate a 25% reduction in revenue in any quarter in 2020 compared to the same quarter in 2019[4]

A Business Concern may not be eligible for a PPP Second Draw Loan if it:

  • Was not in operation on February 15, 2020
  • Is a publicly traded company (or affiliate)
  • Is eligible to receive a grant under the shuttered venue operators program
  • Is involved in political and lobbying activities including engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public document
  • Is affiliated with certain entities organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or with other specified ties to the People’s Republic of China or the Special Administrative Region of Hong Kong[5]
  • Is an entity in which the President, the Vice President, the head of an Executive department, or a Member of Congress, or the spouse of such person owns, controls, or holds at least 20% of any class of equity
  • Is an entity that has permanently closed.

The implementation process of the PPP Second Draw Loans could create new complications for PPP borrowers, and will require additional clarifications from the SBA. Wendel Rosen will continue to monitor any new developments as they unfold. We are available to assist borrowers who are looking to obtain a new or PPP Second Draw Loans, or those borrowers applying for PPP loan forgiveness.


[1] The provisions in this section would take effect only upon a written determination by the Administrator that certain small business debtors are eligible for PPP loans and would sunset 2 years from the date of enactment.

[2] Business concerns with a NAICS code beginning with 72 qualify for the affiliation waiver for PPP Second Draw Loans if they employ 300 or fewer employees. Eligible news organizations with a NAICS code beginning with 511110 or 5151 (or majority-owned or controlled by a business concern with those NAICS codes) may qualify for the affiliation waiver for PPP Second Draw Loans only if they employ 300 or fewer employees per physical location. The SBA also adopted a religious exemption to the affiliation rules.

[3] The interest rate on PPP loans is non-compounding and non-adjustable for all new initial PPP loans and PPP Second Draw Loans.

[4] A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. Gross receipts include all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.

[5] An entity that was created in or organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or an entity that has significant operations in the People’s Republic of China or the Special Administrative Region of Hong Kong, owns or holds, directly or indirectly, not less than 20 % of the economic interest of the business concern or entity, including as equity shares or a capital or profit interest in an LLC or partnership, or an entity that has as a member of the board of directors who is a resident of the People’s Republic of China. Note that the SBA has yet to clarify the meaning of “significant operations”.