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Paycheck Protection Program 2 (PPP2)

Paycheck Protection Program (PPP) - Second Draw Loans

I'm writing to make sure that you're aware that, as part of the year-end Stimulus Act, the President has signed legislation extending the Paycheck Protection Program (PPP) and allowing for "second draw loans" for qualifying businesses that received a PPP loan last year.

As you most likely already know, the PPP is an emergency Small Business Administration (SBA) loan program that originally passed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) last March. What differentiates the PPP from other SBA loan programs is that, if certain requirements are met, a PPP loan will be forgiven on a tax-free basis, meaning that borrowers are effectively receiving a grant from the federal government - a cash infusion in exchange for which they are expected to maintain employee headcounts at the levels they were at before the COVID-19 emergency.

If your business did not receive a PPP loan last year, you may be eligible to receive a first-time loan. Please contact me if that's your situation and you need more information on applying for a such a loan.

If your business received a PPP loan last year, you may be eligible for a second loan under the new Stimulus Act. These second-draw loans are for businesses with no more than 300 employees that experienced at least a 25 percent decline in gross receipts in any calendar quarter in 2020 relative to the same quarter in 2019. Details of the rules for the second-draw program follow.

Eligible and Noneligible Entities

Entities eligible for the PPP Second Draw include businesses, certain non-profit organizations, housing cooperatives, veterans' organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives. Churches and religious organizations are eligible. Ineligible entities include those involved in political and lobbying activities, "think tanks", entities affiliated with entities in the People's Republic of China; and registrants under the Foreign Agents Registration Act.

Loan Terms

The maximum loan amount under the second-draw program is $2 million. In general, borrowers may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020. New entities may receive loans of up to 2.5 times the sum of average monthly payroll costs. Entities in industries assigned to NAICS Code 72 (Accommodation and Food Services) may receive loans of up to 3.5 times average monthly payroll costs. Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location. Waiver of affiliation rules that applied during initial PPP loans apply to a second loan. An eligible entity may only receive one PPP second draw loan. Fees are waived for both borrowers and lenders to encourage participation. For loans of not more than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits its loan forgiveness application and non-profit and veterans organizations may utilize gross receipts to calculate their revenue loss standard.

Maximum Loan Amount for Farmers and Ranchers

A specific loan calculation for the first round of PPP loans for farmers and ranchers who operate as a sole proprietor, independent contractor, self-employed individual, who report income and expenses on a Schedule F, and were in business as of February 15, 2020, is established. These entities may utilize their gross income in 2019 as reported on a Schedule F. Lenders may recalculate loans that have been previously approved to these entities if they would result in a larger loan. This provision applies to PPP loans before, on, or after the date of enactment (i.e., December 27, 2020), except for loans that have already been forgiven.

Seasonal Employer

A seasonal employer is defined as an eligible recipient which: (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year.

Loan Forgiveness

Borrowers of a PPP Second Draw loan are eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.

Safe Harbor on Restoring Full-time Employees and Salaries and Wages Applies

The rule of reducing loan forgiveness for a borrower reducing the number of employees retained and reducing employees' salaries in excess of 25 percent applies.