The Economic Aid Act, passed on Dec. 27, 2020, allows companies to apply for a second Paycheck Protection Program (PPP) loan. The Act also allows borrowers who have already received a loan, to request an increase to their original loan amount. Let’s unpack the details for second draw PPP loans and loan increase requests.
SECOND DRAW PPP LOANS
Who can apply for a second PPP loan?
In general, the same affiliation rules that apply to initial PPP loans apply to second draw loans. Make sure to consider the affiliation rules when evaluating your eligibility for a second draw loan. You can apply for a second draw loan if you meet the following requirements:
- You employ no more than 300 employees
- You experience at least a 25% reduction in gross receipts from one calendar quarter in 2020 to the same quarter in 2019
Your quarters may change based on when you were in business. If you weren’t in operation for all of 2019, your quarter comparisons will differ. Reference pages 21-22 of the SBA’s interim final rule to learn more.
Generally speaking, you’ll compare the gross receipts from a 2020 quarter to the same quarter in 2019. For example, if you use Q2 2020, you’ll compare it to Q2 2019. If you had gross receipts of $50,000 in Q2 2019 and gross receipts of $30,000 in Q2 of 2020, you experienced a 40% revenue reduction.
There’s an alternative approach to calculating the decline in gross receipts. If your business was in operation during all four quarters of 2019, you can compare total annual receipts in calendar year 2020 to 2019 instead of performing a quarter-by-quarter comparison. If you choose this route, you’re required to submit annual tax forms to support your decline calculation.
Note: The Economic Aid Act mentions calendar quarters, but the SBA and Treasury Department haven’t confirmed using calendar quarters. This may be subject to change.
What’s included in gross receipts?
When calculating your gross receipts, include all revenue in whatever form it was received or accrued, according to your accounting method. Gross receipts include:
- Sales of products or services
- Interest, dividends
- Reduced by returns and allowances
- Exclude the forgiveness amount of your first draw PPP loan or an EIDL grant that you received and recorded in 2020 revenue.
If you haven’t submitted the forgiveness application for your first PPP loan, that’s ok. You can still apply for a second PPP loan. However, you’re required to make certifications on the second draw application that you have used or will use your first loan for eligible expenses.
Who can’t apply for a second draw loan?
There are many persons and entities that aren’t eligible for second draw PPP loans, but these are the most notable:
- Any entity that’s engaged in political or lobbying activities
- Any person or entity that receives a grant for shuttered venue operators
- Businesses that have permanently closed
- Those who have previously received a second draw PPP loan
What’s the maximum loan amount?
If you apply for a second draw loan, the maximum loan amount will be the lesser of:
- 2.5 times your average monthly payroll costs in 2019, 2020, or 12 months before the application
- $2 million
The maximum loan amount for NAICS 72 entities is the lesser of:
- 3.5 times your average monthly payroll costs in 2019, 2020, or 12 months before the application
- $2 million
What documentation do I need?
First and most importantly, the documents required to support your payroll costs are generally the same as those used when applying for your first PPP loan.
For loan amounts over $150,000, you must submit documentation proving the 25% gross receipts reduction. Documentation can include relevant tax forms, quarterly financial statements, or bank statements. If your loan amount is $150,000 or less, you aren’t required to submit documentation on your 25% gross receipts reduction with your second draw loan application. However, you will be required to provide documentation when you apply for loan forgiveness.
If you use your calendar-year 2019 payroll costs to determine both your first and second PPP loan amounts, and you apply through the same lender, you aren’t required to provide additional documentation to justify your payroll costs.
How do I apply for a second PPP loan?
When can I apply?
You can begin applying as early as Jan. 13, 2021. The deadline to apply for a second draw loan is May 31, 2021.
REQUESTING AN INCREASE OF YOUR INITIAL PPP LOAN AMOUNT
Who can request an increase?
- If you returned all of your initial PPP loan, you can reapply for a PPP loan.
- If you returned a portion of your PPP loan, you can reapply for that portion (maximum loan amount approved minus the amount you kept).
- If you didn’t accept the full amount of your PPP loan, you may request an increase up to the amount previously approved. Connect with your lender on this request.
- Seasonal employers who received a PPP loan before Dec. 27, 2020, may request an increase if a higher maximum loan would be calculated under the new rules (average total monthly payments for payroll for any 12-week period beginning Feb.15, 2019, and ending Feb. 15, 2020).
You must submit your request by May 31, 2021 using Form 2483. Approvals are subject to the availability of funds. If you already applied for and received forgiveness of your PPP loan, you can’t request an increase. Applying for a second draw loan may be an option.
Farmers and ranchers
If you’re a farmer or rancher who received a PPP loan before Dec. 27, 2020, you can request a recalculation of your loan amount based on the new gross income formula. This formula is:
2019 or 2020 Schedule F gross income (capped at $100,000 / 12) x 2.5 = Maximum loan amount
If you have employees, you can include their wages and employer-paid benefits, and retirement benefits in your loan amount calculation. However, the gross income on line 9 must be reduced by those expenses and certain other sales.
If this calculation results in a bigger loan, you may receive an increase.
Any partnerships that received a PPP loan, and only included amounts for payroll costs of employees and other eligible operating expenses, but didn’t include partner compensation, can request an increase in their loan amount.
What if I received an EIDL Advance?
Great question! The Economic Aid Act also states that any EIDL Advance amounts that were deducted from your PPP forgiveness amount will be refunded to you with interest.
Originally published 1/8/2021. Updated 3/31/2021.
Have questions about the second draw PPP loans or how to request a loan increase? We can help!