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PPP Round 2 – Is it Available to You?

The recently passed Consolidated Appropriations Act, 2021 (the Act) included several significant changes to the Paycheck Protection Program (PPP), significantly expanding the eligible costs for forgiveness, simplifying the forgiveness application process for smaller loans, providing a concrete answer on the taxability of PPP, and the creation of PPP second draw loans. This article will focus on this last provision.

Section 311 of Division N of the Act establishes PPP second draw loans (PPP2) for smaller and harder-hit businesses, with a maximum loan amount of $2 million. To qualify for a PPP2 loan, eligible entities must:

  • Employ no more than 300 employees;
  • Have used or will use the full amount of their first PPP loan; and
  • Demonstrate at least a 25 percent reduction in gross receipts in the first, second, third, or fourth quarter of 2020 relative to the same 2019 quarter.

The eligible entity types are generally the same for PPP2 as they were for the first round, with some expansion for certain housing cooperatives, news organizations, 501(c)(6) organizations, and destination marketing organizations, as further defined.

Similar to PPP round 1, in general, borrowers may receive a PPP2 loan amount of up to 2.5X the average monthly payroll costs in the one-year period prior to the date the loan is made or calendar 2019. As previously noted, no loan can be greater than $2 million. Other more specific loan terms, as applicable, are as follows:

  • Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019, through February 15, 2020.
  • New entities not in existence during the one-year period prior to February 15, 2020, may receive loans of up to 2.5X their average monthly payroll costs in the months since inception.
  • Entities in industries assigned to NAICS code 72 (Accommodation and Food Services) may receive loans of up to 3.5X average monthly payroll costs.
  • An eligible entity may only receive one PPP second draw loan.
  • For loans of $150,000 or less, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits their loan forgiveness application, and non-profit and veterans organizations may utilize gross receipts to calculate their revenue loss standard.

The forgiveness process and terms remain similar to those under PPP round 1, including the newly effective added categories of eligible expenses and the simplified loan forgiveness application process for loans of $150,000 or less. The newly added categories of allowable uses of loan proceeds that can be included for forgiveness are as follows:

  1. Covered Operations Expenditures - defined as “a payment 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.”
  2. Covered Property Damage Costs - defined as “a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.”
  3. Covered Supplier Costs - defined as “an expenditure made by an entity to a supplier of goods for the supply of goods that (a) are essential to the operations of the entity at the time the expenditure is made and (b) is made pursuant to a contract, order, or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan, or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan.”
  4. Covered Worker Protection Expenditures - defined as “an operating or capital expenditure to facilitate the adaptation of the business activities of an entity to comply with the requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established by a State or local government, during the period beginning March 1, 2020, and ending on the date in which COVID-19 National Emergency expires.” This may include:

a. The purchase, maintenance, or renovation of assets that create or expand:

  • A drive through window facility,
  • An indoor, outdoor, or combined air or air pressure ventilation or filtration system,
  • A physical barrier such as a sneeze guard,
  • An expansion of additional indoor, outdoor, or combined business space,
  • An onsite or offsite health screening capability,
  • Other assets relating to the requirements described above.

b. The purchase of:

  • Covered materials described in section 329.103(a) of title 44, Code of Federal Regulations, or any successor regulation (this covers items identified as priority production items under the Defense Production Act),
  • Particulate filtering face piece respirators approved by the National Institute for Occupational Safety and Health,
  • Other types of PPE as approved by the administrator.

c. This may NOT include residential real property or intangible property.

The Act requires the SBA to establish regulations to carry out these changes within 10 days after the enactment of the Act. Additional guidance is needed from the SBA on various topics, but most importantly, the definition of gross receipts used when determining eligibility. Additional clarification is also needed for larger borrowers who had utilized an existing larger SBA size standard or utilized the alternative size standard when applying for their first PPP loan. It is anticipated that lenders will open up the application process shortly after the final guidance is provided and the SBA announces that they will begin accepting and approving these PPP2 applications.

Please reach out to your Bonadio advisor or our PPP Consulting Team to navigate these recent law changes.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.