SBA Part Thirty-Three: PPP 2.0 Timing, Release Of “Second Draw” Application, And Two New IFRs – Finance and Banking

The Small Business Administration (SBA) announced it would
re-open the Payroll Protection Program (PPP) on Jan. 11, 2021.
Initially, the reopening is limited to community financial
institutions and lenders making “First Draw” PPP loans. A
First Draw loan is a PPP loan to a business that has not already
received a PPP loan. Those same lenders will be able to accept
“Second Draw” PPP Loans on Jan. 13, 2021. A Second Draw
loan is a new PPP loan to any business that has already received a
PPP loan. Shortly thereafter, the PPP program will most likely open
to all participating lenders for First Draw and then Second Draw
loans.

The First Draw PPP loan application can be found here. The Second Draw loan
application can be found here. The SBA is still working
on a simplified application for loans of $150,000 or less.

Additionally, on Jan. 8, 2021, the SBA and U.S. Department of
Treasury released two interim final rules (IFRs) related to the
Consolidated Appropriations Act, 2021 (CAA). The interim final rule on the PPP as
amended by Economic Aid Act consolidates the prior interim
final rules and significant guidance in addition to incorporating
the changes brought about in the CAA.

Furthermore, the SBA released the interim final rule on Second Draw
loans which provides some clarity regarding the eligibility
requirements of the Second Draw PPP loans. This IFR provides a
definition for gross receipts. It defines “gross
receipts” to include all income (ordinary and investment),
except for the following: net capital gains (losses), amount of any
forgiven First Draw PPP loan, “taxes remitted to a taxing
authority if included in gross 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, amounts collected as travel
agent, real estate agent, advertising agent, conference management
service provider, freight forwarder, or customs broker. All other
items, . investment income, and employee-based costs such as
payroll taxes, may not be excluded from gross
receipts.” The IFR states a borrower may use the accounting
method that it normally uses. The IFR also noted businesses that
are part of a single corporate group (majority owned, directly or
indirectly, by a common parent) are limited to a total Second Draw
PPP loan amount of $4 million in the aggregate.

For additional information regarding changes to the PPP among
other stimulus benefits to note, please see SBA Part Thirty-One. A few
highlights related to the PPP program include:

• New entities are now eligible to obtain a PPP loan, such as
  501(c)(6)s, housing cooperatives, and destination marketing
  organizations, among other types of organizations.




• PPP borrowers may set their PPP loan’s covered period to be
  any length of time period between eight and 24 weeks to best meet
  their business needs for both first and second-round loans.




• The eligible use of proceeds list expanded to cover additional
  expenses, such as operations expenditures, property damage costs,
  supplier costs, and worker protection expenditures for both first
  and second-round loans.




• The CAA provides certain borrowers (who have not received
  forgiveness as of Dec. 27, 2020) with the opportunity to apply for
  an increase in their original loan amount. The initial IFR noted
  above provides clarification that borrowers are eligible to apply
  for an increase in their original loan amount if:
  

  • A partnership did not include partner compensation in the
    payroll costs calculation, and

  
  

  • A seasonal employer would benefit from the CAA’s expanded
    12-week period to calculate its average monthly payroll costs.




• The IFR also allows borrowers that returned all or part of
  a PPP loan to re-obtain those funds and allows borrowers that did
  not accept the full amount of the PPP loan to take the remaining
  amount.




• As further clarified in the IFR released on Jan. 8, certain
  existing PPP borrowers that have spent all (including any
  additional loan funds that may be obtained, as noted above) prior
  PPP First Draw loan funds (prior to receiving a Second Draw) and
  meet the revised eligibility criteria may soon apply for a Second
  Draw PPP loan.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.