Paycheck Protection Program Second Draw Loans

GUIDANCE FOR SMALL BUSINESSES AND NOT-FOR-PROFIT ORGANIZATIONS

The Economic Aid to Hard-Hit Small Businesses, not-for-profits, and Venues Act (the “Economic Aid Act”) was signed into law on December 27, 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“2021 Appropriations Act”). The Economic Aid Act authorizes the Small Business Administration (“SBA”) to disburse an additional $284 billion of funds through the second temporary loan program called the Paycheck Protection Program Second Draw Loans (“PPP Second Draw Program”). Specifically, the PPP Second Draw Program allows borrowers that previously received a loan through the Paycheck Protection Program (“PPP First Draw Program”) (see here for an article dated April 4, 2020 for information on the PPP First Draw Program), to apply for a second loan (“Second Draw PPP Loans”). The intent of the PPP Second Draw Program is to provide additional relief to hard-hit small businesses, including qualified not-for-profit organizations.

The below will provide a high-level understanding of the PPP Second Draw Program.

• Eligible Entities: Eligible entities include businesses, certain not-for-profit organizations (including religious organizations), housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.[i] Congress has specifically included language clarifying that religious organizations are eligible to apply.[ii]

• General Requirements for Eligible Entities[iii]:
  • Employs 300 or fewer employees per physical location;
  • Experienced a reduction in gross receipts of at least 25% in the first, second or third quarter in 2020 compared to the same quarter in 2019. Borrowers may also utilize the gross receipts from the fourth quarter of 2020 (not-for-profit and veterans’ organizations may utilize gross receipts to calculate their revenue loss standard);
  • Received a loan under the PPP First Draw Program; and
  • Used or will use the full amount of the loan pursuant to the PPP First Draw Program on or before the Second Draw PPP Loan is disbursed.

• Maximum Loan Amount: $2 million which includes the loan amount received and not paid back under the PPP First Draw Program.[iv]

• Calculation of Loan Amount: Average monthly payroll costs for 2019 or 12 consecutive months prior to the loan application date multiplied by a factor of 2.5.