Second Draw PPP Loan – Let’s Go | Wendel Rosen LLP

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On December 27, 2020, President Trump signed the Economic Aid to Hardly Affected Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) to continue to support individuals and businesses financially affected by the ongoing coronavirus pandemic. The provisions include an extension of the Paycheck Protection Program (PPP) created by the CARES Act, which will cost approximately $ 284 billion.

The new Economic Aid Act Resolved several issues related to the PPP loan process and added new rules for borrowers applying for new PPP loans and requesting waiver for previous PPP loans.

January 2021, the US Small Business Administration (SBA) and the Treasury Department issued new guidelines for the new PPP loan. The guidelines contained two preliminary final rules (IFRs); (1) Temporary changes to the business loan program; Paycheck Protection Program as amended; and 2) Temporary changes to the business loan program; Loans for the second drawing of the Paycheck Protection Program.

The new PPP loans will be granted on a first come, first served basis and are expected to be exhausted quickly. The Economic Aid Act extended the term of the PPP to March 31, 2021. New borrowers and those who have already received a PPP loan can receive a PPP “second draw” loan of up to $ 2 million. Borrowers should note that some of the eligibility requirements have changed. For this reason, some borrowers who received a PPP loan in the “First Draw” for the first time may not be eligible for a PPP Loan in the Second Draw.

The Economic Aid Act provides a special procedure in bankruptcy proceedings when the administrator determines that certain small business debtors are eligible for PPP loans. It requires judicial approval for PPP loans to these debtors and requires that any such loan be given a priority claim in the bankruptcy process.[1] The Law on Economic Aid also gave the SBA more flexibility in accepting documents that go beyond those listed in the CARES Act in order to determine eligibility for sole proprietorships and the self-employed.

Second drawing PPP loans are generally subject to the same terms and conditions as first drawing PPP loans. These include the following terms:

  • No collateral is required.
  • No personal guarantees are required.
  • All PPP loans are processed by all lenders under delegated authority and lenders are allowed to rely on certificates from the borrower to determine the borrower’s eligibility and use of the PPP loan proceeds.

The Economic Aid Act applied the same follow-up rules and waivers to second-drawing PPP loans, adding a waiver for certain eligible news organizations, and making adjustments to reflect the reduced size requirements for second-drawing PPP loans.[2]

Second Drawing PPP Loan Summary:

  • The maximum loan amount is $ 2 million
  • The PPP loan amount is still based on 2.5 times the average monthly labor cost
    • 3.5 times the average monthly payroll for companies in the hospitality and catering industries (NAICS code starts with 72)
  • At least 60% of PPP funds must be used on payroll for full forgiveness
  • Expansion of the existing safe havens for the restoration of full-time positions as well as salaries and wages.
    • Applying the loan waiver reduction rule for borrowers who reduce the number of employees employed and reduce employee salaries by more than 25%
  • All unspent PPP loan amounts have a term of 5 years
  • Interest accrues at 1.0% per year[3]
  • Additional eligible wage costs such as group life, disability, eyesight and / or dental insurance
  • Additional eligible non-salary expenses such as operating costs, property damage costs, supplier costs and employee protection costs
  • The borrower can choose a covered period between 8 and 24 weeks
  • Simplified award procedure for PPP loans of $ 150,000 or less
  • An Eligible Corporate Company can only obtain a second-draw PPP loan

A business interest may qualify for a second drawing PPP loan if it meets the following criteria:

  • Does not employ more than 300 people
  • have drawn or will be using the full amount of their first PPP loan on or before the expected second PPP loan payout date
  • Can demonstrate a 25% drop in sales in each quarter of 2020 compared to the same quarter of 2019[4]

A business entity may not be eligible for a second drawing PPP loan if it:

  • Was not in operation on February 15th, 2020
  • Is a publicly traded company (or affiliate)
  • Eligible for a grant under the Closed Venue Operator Program
  • Engages in political and lobbying activities, including advocacy in areas such as public policy or political strategy, or otherwise refers to itself as a think tank in a public document
  • Affiliates with certain entities organized under the laws of the People’s Republic of China or the Hong Kong Special Administrative Region, or with other specific links with the People’s Republic of China or the Hong Kong Special Administrative Region[5]
  • Means a corporation of which the president, vice president, chief executive or member of Congress or the spouse of such person owns, controls or holds at least 20% of a share class
  • Is an entity that has been permanently closed.

The implementation process of the PPP Second Draw Loans could lead to new complications for PPP borrowers and requires additional clarifications by the SBA. Wendel Rosen will continue to follow the development of new developments. We are available for borrowers looking to get a new or second drawing PPP loan, or borrowers applying for PPP loan waiver.


[1] The provisions in this section would only take effect after a written determination from the Administrator that certain small business borrowers are eligible for PPP loans and would expire 2 years from the Effective Date.

[2] Companies with a NAICS code starting with 72 will qualify for membership waiver for second-drawing PPP loans if they have 300 or fewer employees. Eligible News Agencies with a NAICS code beginning with 511110 or 5151 (or majority owned or controlled by a corporation with those NAICS codes) can only qualify for membership waiver for second-drawing PPP loans if they Employ 300 or fewer people per location. The SBA also passed a religious exception to the membership rules.

[3] The interest rate on PPP loans is non-cumulative and non-adjustable for all new initial PPP loans and second-drawing PPP loans.

[4] For a borrower who has served all four quarters of 2019, the required revenue reduction applies if they experienced a 25% or greater decrease in annual revenue in 2020 compared to 2019 and the borrower submits copies of their annual tax forms that this is evidenced by the decline in sales. Gross income includes all income in whatever form received or accrued from any source, including the sale of any product or service, interest, dividends, rents, royalties, fees or commissions, minus any returns and allowances. In general, revenue is considered to be “Total Income” (or “Gross Income” in the case of a sole proprietorship, independent contractor, or self-employed individual) plus “Cost of Goods Sold” and excludes net capital gains or losses as defined on the IRS tax return forms and reported. Gross Income does not include: Taxes levied on and remitted to a tax agency if included in gross or total income (such as sales or other taxes levied by customers and excluding taxes imposed by the Group or its employees); Proceeds from transactions between a group and its domestic or foreign affiliated companies; and amounts collected on behalf of others by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker. All other items, such as B. Costs for subcontractors, reimbursements for purchases made by a contractor at the customer’s request, investment income and employee-related costs such as wage taxes, may not be excluded from gross income.

[5] No less directly or indirectly owns or holds any legal entity incorporated in the People’s Republic of China or the Hong Kong Special Administrative Region, or incorporated or organized under the laws of the Hong Kong Special Administrative Region, or any legal entity having substantial business activities in the People’s Republic of China or the Hong Kong Special Administrative Region as 20% of the economic interests of the company or company, including as equity interests or equity or profit participation in a GmbH or partnership or a company that is a member of the board of directors that is resident in the People’s Republic of China. Note that the SBA has yet to clarify the meaning of “major operations”.

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