What are the key takeaways from the second round of the Paycheck Protection Program (PPP)? The Consolidated Appropriations Act (CAA) 2021 permits certain small businesses who received a Paycheck Protection Program (PPP) loan and experienced a 25% reduction in gross receipts to take a PPP Second Draw Loan of up to $2 million.
Who is Eligible for the Second Round of the Paycheck Protection Program (PPP)?
Prior PPP borrowers must meet the following conditions to be eligible for the PPP Second Draw Loans:
- Employ no more than 300 employees per physical location;
- Have used or will use the full amount of their first PPP loan; and
- Demonstrate that gross receipts in any calendar quarter of 2020 were at least 25% lower than the same quarter in 2019. Alternatively, you may compare annual gross receipts in 2020 with annual gross receipts in 2019 if you were in business in 2019.
Eligible entities include for-profit businesses, certain not-for-profit organizations, housing cooperatives, veterans’ organizations, self-employed individuals, and more.
Borrowers may receive a PPP Second Draw up to 2.5x the average monthly payroll costs in the one year prior to the loan or the calendar year. In addition, those in the hospitality or food service industries may receive Second Draw loans up to 3.5x the average monthly payroll costs. An eligible entity is only permitted a single PPP Second Draw loan.
What are the Loan Terms?
PPP Second Draw Loans less than $150,000 may submit a certification on or before the submission of the loan forgiveness application. Companies must verify that the eligible entity meets the applicable revenue loss requirement. Not-for-profits and veterans’ organizations may use gross receipts to calculate their revenue loss standard.
Like the first PPP loan, the second draw may be forgiven for payroll costs up to 60% (with some exceptions). Additionally, some nonpayroll costs such as rent, mortgage interest, and utilities may be forgiven up to 40%. Forgiveness of the loan is not included in income as cancellation of indebtedness income.
In conclusion, the CAA 2021 extends current safe harbors on restoring full-time employees, salaries, and wages. Specifically, it applies the rule of reducing loan forgiveness for the borrower reducing the number of employees retained and reducing employees’ salaries in excess of 25%.