2nd Draw PPP Loans: SBA Explains Eligibility & Amount

On December 27, 2020, the President signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act). The Economic Aid Act authorizes the SBA to guarantee Paycheck Protection Program Second Draw Loans (PPP Second Draw Program), under generally the same terms and conditions available for the original first draw Paycheck Protection Program (PPP) loans established by the CARES Act (Interim Final Rule, 13 CFR Parts 120 and 121).

PPP 2nd Draw Eligibility.

A borrower is eligible for a Second Draw PPP Loan only if it has 300 or fewer employees and experienced a revenue reduction in 2020 relative to 2019. In addition, the Economic Aid Act provides that a Second Draw PPP Loan may only be made to an eligible borrower that (1) has received a First Draw PPP Loan, and (2) has used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower.

Reduction in Quarterly Gross Receipts.

To be eligible for a Second Draw PPP Loan, the borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019. Gross receipts do not include the forgiven amount of the First Draw PPP loan.

Example. A borrower with gross receipts of $50,000 in the second quarter of 2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40% between the quarters, and is therefore eligible for a Second Draw PPP loan (assuming all other eligibility criteria are met).

For loans greater than $150,000, the borrower must provide documentation to the lender substantiating the decline in gross receipts. For loans of $150,000 or less, the borrower must provide documentation verifying the decline in gross receipts upon or before seeking loan forgiveness for the Second Draw PPP Loan or upon SBA request.

Read the full summary by Sharon Kreider here.