The U.S. Small Business Administration (SBA) released additional guidance for Paycheck Protection Program (PPP) borrowers looking to obtain another loan under the PPP second draw program. Under this recently enacted program, a PPP borrower may obtain a second loan if the borrower meets key criteria including 300 or fewer employees, used or will use the full amount of their first loan before receiving the second, and experienced a revenue reduction of 25% or more in all or part of 2020 compared to prior year.
The SBA, in consultation with the Treasury Department, announced today that PPP will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11 and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter.
It is important to note that the guidance takes effect immediately, lenders determine how soon the applicant can apply and businesses have less than three months to do so. Once the PPP loan portals are open, the last day to apply for and receive a PPP Loan is March 31, 2021. The Second Draw Program loans are limited and while Congress has approved $284 million in new loans, the money is likely to go much faster this time around now that forgiveness and tax rules are clearer. Maximum loan sizes are $2 million or a $4 million aggregate maximum for borrowers considered a single corporate group with a 5-year maturity.
The PPP second draw program is available to PPP borrowers who can demonstrate a 25% reduction in gross receipts during any quarter in 2020 as compared to the same quarter in 2019. The second draw program also reduces the maximum number of employees a PPP borrower can have from 500 to 300. A borrower must have used the full amount of its initial PPP loan for authorized purposes or will use the full amount prior to the disbursement date of the second draw PPP loan to qualify.
The SBA also revised and consolidated guidance into 82-pages for entities and individuals hoping to obtain their first PPP loan. The guidance simply restates existing SBA interim final rules. The updated first PPP loan program allows new PPP borrowers to use their 2019 or 2020 average monthly payroll to determine the maximum loan amount. Unlike the second draw program, the maximum loan amount stays at $10 million. There is a cap of $20 million for the maximum amount that a single corporate group can receive. A single corporate group is defined as businesses that are majority owned, directly or indirectly, by a common parent.
Overall eligibility, other than the revenue reduction criteria and change in maximum number of employees, is substantially like the original Paycheck Protection Program. Interestingly though, the list of eligible entities does not include a small business concern, which encapsulates the alternative size standard that could be used to qualify under the original program. In the original Paycheck Protection Program, a small business concern, as defined by SBA, could use the revenue and employee size for its industry per the SBA size standards or the alternative size standard to qualify for a PPP loan.
Key PPP updates include:
- PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
- PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
- The PPP provides greater flexibility for seasonal employees;
- Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
- Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.
The new guidance released includes:
- PPP Guidance from SBA Administrator Carranza on Accessing Capital for Minority, Underserved, Veteran, and Women-owned Business Concerns;
- Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act; and
- Interim Final Rule on Second Draw PPP Loans
Remember, these loans will go fast, so make sure you contact your LBMC Engagement Shareholder to ensure you take advantage of these opportunities.