The Small Business Administration (SBA), in conjunction with the Treasury Department, has released updated guidance on the Paycheck Protection Program (PPP), including several interim final rules related to PPP and the second draw of PPP loans, as outlined in the recently passed Economic Aid Act.
As of Monday morning the SBA announced 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.
Generally, the eligibility and documentation requirements for new and second draw PPP loans are similar to the original program, with two major changes:
- Second draw PPP loans are available to businesses that can demonstrate a 25% loss in revenue compared to last year. This may be calculated by comparing the borrower’s quarterly gross receipts for one calendar quarter in 2020 with the corresponding quarter in 2019.
- To be eligible for a second draw loan, the borrower must have used, or will use, the full amount of the first loan on or before the expected disbursal date of the second loan.
- Eligible businesses can have a maximum of 300 employees. Like the original PPP loans, the second draw program retains the unique rules around businesses with a NAICS code beginning in 72, including hotels. This means that the 300-employee rule is evaluated on a per-location basis for businesses with more than one physical location. Additionally, the SBA affiliation rules continue to be waived for these businesses, allowing each hotel location to apply for a separate PPP loan using its unique EIN.
- Both the maximum loan amount and the payroll amount calculation used to size the loan have changed.
- Hotels and restaurants are now eligible to receive up to 3.5x their monthly payroll costs, up to $2,000,000, as the maximum of the loan, up from 2.5x in the CARES Act and compared to other businesses.
- Payroll for second draw PPP loans is calculated using either the 12-month period prior to the loan being made or the calendar year 2019.
- Businesses that are part of a single corporate group are limited to a maximum of $4,000,000 in aggregate second draw PPP loans. This applies to businesses that are eligible for the affiliation waiver and per-location employee test.
SBA also issued specific guidelines for minority, underserved, veteran, and women-owned employers. Among other steps, the agency plans to accept PPP loan applications only from certain lenders that focus on underserved and minority businesses and borrowers in distressed areas for at least the first two days of the program.
Members considering a second draw of PPP are urged to contact their lenders and begin gathering the data and information necessary to complete the application process as soon as possible.