Rules require those who’ve received a first-draw PPP loan to have completely exhausted it on eligible expenses before they can get a second draw.

The latest COVID-19 relief bill, finally passed in late December after months of debate, authorized another round of the Paycheck Protection Program to help restaurants and other small businesses weather the ongoing pandemic. Banks and other financial institutions were able to start lending this week under the program run by the Small Business Administration.

The Association worked hard to ensure that the final bill included measures that were overlooked in the original PPP, as well as rectify some imbalances in the program. While very similar to the first round of forgivable loans, this second round does have some differences. Here are some key points:

1. Small business emphasis. Of the $284.5 billion approved for the PPP this time around, up to $75 billion is earmarked for small businesses, with $30 billion potentially going to smaller lenders:

  • $35 billion for first-time PPP borrowers
  • $15 billion and $25 billion for first draw and second draw PPP loans, respectively, for borrowers with a maximum of 10 employees, or borrowers in low- or moderate-income neighborhoods applying for loans of less than $250,000
  • $15 billion for first- and second-draw PPP loans for lending by community financial institutions
  • $15 billion for first- and second-draw PPP loans for lending by Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion

2. Eligibility. Requirements for the program remain much the same as in the first round except that restaurants and hotels or companies with multiple locations operating under industry code NAICS 72 are limited to 300 employees per physical location, down from 500 previously.

Restaurants must show a 25% decline in gross receipts in at least one calendar quarter in 2020 when compared to the same period in 2019. (There are stipulations for how seasonal restaurants or restaurants that weren’t in business in 2019 can qualify, along with those for business that weren’t opened all of 2019.)

Rules also require those who’ve received a first-draw PPP loan to have completely exhausted it on eligible expenses before they can get a second draw.

3. Documentation. Paperwork has been streamlined somewhat this time around. If you’re applying for a PPP second-draw loan of less than $150,000, you don’t need supporting documentation of the 25% decline in gross receipts at the time you apply, but you do need to submit documentation to your lender on or before the date you apply for loan forgiveness. Restaurants taking out a loan of more than $150,000 must provide the lender with documentation at the time they apply for the loan.

Loan forgiveness documentation also is streamlined; borrowers of less than $150,000 can use a single-page loan forgiveness form as long as they certify they have complied with the program. Those taking out loans larger than that must still use the original program’s documentation and follow the loan forgiveness process outlined there.

4. Loan amounts. How much you can borrow now is calculated by choosing an average monthly payroll option under the program and multiplying that by 3.5 as opposed to the 2.5 multiplier used in the original program.

The maximum amount you can borrow in this second draw is $2 million, down from $10 million. However, the cap on first-time borrowers is still $10 million.

5. Coverage period. The period the loan covers, which was expanded from 8 weeks to 24 weeks with the PPP Flexibility Act, remains 24 weeks, but now you can choose the length of your covered period as long as it’s not fewer than 8 weeks or more than 24 weeks. You have to apply before March 31, 2021, subject to availability of funds.

6. Covered expenses. The types of expenses you can cover with PPP loans have been expanded. In addition to payroll, rent or mortgage, and utilities, allowable expenses include (among others):

  • Costs for business software or cloud computing services that facilitate your business operations
  • Expenses for personal protection equipment such as masks, gloves, shields, physical barriers, signage, ventilation or filtration systems or drive-thru windows needed to comply with government pandemic requirements
  • Property damage that resulted from public disturbances not covered by insurance

7. EIDL advances. If you received an Economic Injury Disaster Loan (EIDL) advance (between $1,000 and $10,000), it won’t reduce your PPP loan forgiveness. PPP loans from borrowers who already received forgiveness and had their EIDL advance deducted from that will be remitted back to the lender.

8. Tax treatment. PPP loans are not included in business income, and expenses covered by both PPP loans issued in 2020 and in this second 2021 round are tax deductible (reversing previous guidance from the Treasury Department and IRS). Also, any “income tax basis” increase that results from the borrower's PPP loan will remain level if the PPP loan is forgiven.

See the Association’s full PPP second-draw policy update for a deeper dive into the details and for access to key loan application forms.