Additional Guidance on First and Second Draw PPP Loans

Initial PPP Funding

If you did not receive a PPP loan in the initial funding in 2020 you may be eligible to apply now.  The information below is NOT inclusive of all guidance from a recently issued 82 page Interim Final Rule on changes made by the Economic Aid Act enacted on December 27, 2020.  Please reach out to your Mitchell Wiggins advisor for advising tailored to your organization.

Terms of Loan – Terms are the same as PPP Round 1 except that the borrower can choose 8 weeks or 24 weeks no matter when the loan is disbursed.

Eligibility Criteria

  • Businesses with 500 or fewer employees, affiliation rules apply
  • Nonprofit 501(c)(3) organizations with 500 or fewer employees
  • Nonprofit 501(c)(6) organizations with 300 or fewer employees with limitations on lobbying activities
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Accommodation and food services operations (NAICS codes starting with 72) with fewer than 500 employees per physical location.

Maximum Loan Amount – Certain borrowers such as farmers, self-employed individuals with employees, and partnerships should refer to the IFR above for more guidance on how to calculate the loan amount.

  • 2.5 x average monthly payroll costs as defined below (limited to a max of $10,000,000)
    • Borrower may use 2019, 2020 or the 12 months prior to the loan application to calculate annual payroll costs.
    • Borrower must exclude any compensation paid to an employee in excess of $100,000 annually.
  • Self-employed, Schedule C filers with no employees may use net profit from their 2019 or 2020 Schedule C, divide by 12 and multiply by 2.5

Payroll costs

  • Gross wages and tips
  • Employer contributions to employee group health, life, disability, vision and dental insurance
  • Retirement contributions
  • State and local taxes on employee compensation (unemployment taxes)

How to apply

Contact your lender now to express interest in applying.   Form 2483 – Paycheck Protection Borrower Application Form  will need to be submitted.  The application period closes on March 31, 2021.

PPP Draw Two

The Economic Aid Act also provided for additional funding for those entities who received a PPP loan previously.  The information below is NOT inclusive of all guidance, for more information please refer this recently issued IFR for guidance on second draw loans.

Terms of Loan – Terms are the same as PPP initial loans except that the borrower can choose 8 weeks or 24 weeks no matter when the loan is disbursed.

Eligibility Criteria

Applicants must meet ALL THREE of the below criteria to be determined to be eligible for a PPP Draw 2:

  • Employ no more than 300 people (affiliation rules apply).  Accommodation and food services operations (NAICS codes starting with 72) must have fewer than 300 employees per physical location.
    • Entities that have temporarily closed or suspended operations may apply. Entities that have permanently closed may NOT apply.
  • Have experienced a decrease in gross receipts of at least 25% for any quarter in 2020 compared to the same quarter in 2019 (or the borrower may compare annual gross receipts for 2020 to 2019). If the business was not in business in 2019 the business can compare the gross receipts in any quarter in 2020 to the first quarter of 2020 to determine the reduction in gross receipts.
    • The guidance issued clarifies that PPP forgiveness income received in 2020 is not includible in gross receipts. We need additional guidance related to other funding received through the CARES Act to determine if it is includible.
    • Generally, receipts are considered “total income” or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”.
      • Gross receipts are determined the entity’s accounting method (cash or accrual) and includes:
        • The sales of products or services reduced by returns and allowances plus “cost of goods sold,”
        • Interest, dividends (but excludes capital gains or losses)
        • Rents, royalties, fees, or commissions
      • Gross receipts do not include:
        • Taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers);
        • Related party and affiliate transaction proceeds
        • Amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
      • All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.
  • Must have received a First Draw PPP loan and have used or will use before disbursement of Second Draw PPP loan. There is no requirement to have the application for forgiveness for First Draw submitted prior to applying for or receiving a Second Draw PPP loan.

Maximum Loan Amount – Certain borrowers such as farmers, self-employed individuals with employees, and partnerships should refer to the IFR above for more guidance on how to calculate the loan amount.

  • 2.5 x average monthly payroll costs as defined below (limited to a max of $2,000,000)
    • Borrower may use 2019 or the twelve month period prior to the date the loan is made to calculate annual payroll costs
    • Borrower must exclude any compensation paid to an employee in excess of $100,000 annually
  • Self-employed, Schedule C filers with no employees may use net profit from their 2019 or 2020 Schedule C, divide by 12 and multiply by 2.5
  • For accommodation and food services operations (NAICS codes starting with 72) the maximum amount of the loan is 3.5 x average monthly payroll costs

Payroll costs

  • Gross wages and tips
  • Employer contributions to employee group health, life, disability, vision and dental insurance
  • Retirement contributions
  • State and local taxes on employee compensation (unemployment taxes)

How to apply

Documentation required

  • For borrowers that received PPP loans earlier this year, the same payroll information provided to lenders for the initial round of funding can be used to apply for this round of PPP loans.
  • For loans greater than $150,000, documentation supporting the decline in gross receipts must be submitted with the application. For loans less than $150,000, documentation supporting the decline in gross receipts does not have to be submitted with the application but will need to be submitted on or before the date the borrower applies for forgiveness.

Corporate Groups

In order to preserve PPP funding, businesses that are part of a single corporate group (majority-owned by a common parent, directly or indirectly) cannot receive more than $20,000,000 of PPP loans, in aggregate, including first and second draw loans.  It is the responsibility of the applicant to notify the lender if they have applied for or received PPP loans in excess of the amount permitted under this guidance.

PPP Loan Forgiveness

First and Second Draw Loans can be forgiven if funds are used on eligible costs which include:

  • Payroll
  • Rent (related party rules apply)
  • Mortgage interest
  • Utilities
  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID safety guidelines
  • Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 not covered by insurance or other compensation
  • Expenditures to suppliers that are essential at the time of purchase to recipient’s current operations
  • Covered operating expenditures which refer to payments for business software, human resources, and accounting

As with prior PPP loan forgiveness, borrowers must spend no less than 60% of the funds on payroll during the covered period.