Paycheck Protection Program Updates

The Consolidated Appropriations Act (CAA) passed at the end of December 2020 contained language reopening the Paycheck Protection Program (PPP) for First Draw Loans and creating the PPP for Second Draw Loans. The below listing presents a summary of the major points of each program.

PPP First Draw (PPP1):

• Opened back up for first-time borrowers
• Flexible covered period allowed (time period between 8 and 24 weeks)
• One page forgiveness application for PPP loans <$150K (has not been released)
• Payroll expanded to include company paid disability, vision and dental
• EIDL Advance/Grant not deducted from forgiveness amount
• Additional eligible uses of loan proceeds include worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations

PPP Second Draw (PPP2):

General Information

• Available until March 31, 2021
• 5-year forgivable loan @ 1%
• Flexible covered period allowed (time period between 8 and 24 weeks)

Eligibility Criteria

• PPP1 funds must be spent by PPP2 disbursement date
• For NAICS #72 businesses (such as hotels and restaurants) with multiple locations, the borrower must have less than 300 employees per physical location
  
  • affiliation rules still apply, but it appears that the alternative size standards and net income/book value test no longer apply)
  • For businesses with multiple locations, not more than 300 employees per physical location
• Borrower must show a 25% “gross receipts” reduction in any 2020 calendar quarter, compared to the same quarter in 2019
  • Borrower can also compare full year 2020 vs. 2019 for 25% “gross receipts” reduction
  • Comparison periods will differ for borrowers who were not in operation for entire 2019 year
  • “Gross receipts” include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
    • PPP1 forgiveness amount and EIDL is excluded from the “gross receipts” reduction test
    • No guidance has been released on Provider Relief Funds being includable as “gross receipts” during 2020
  • Method of accounting (cash or accrual) for “gross receipts” reduction test should follow method used on tax returns

Loan Amount

• Maximum loan amount of $2 million
• Loan amount equal to 2019 or 2020 average monthly payroll x 2.5 (or x 3.5 for NAICS code 72 such as restaurants and hotels)
• Schedule F: Loan based on 2.5x average monthly gross income (max of $100K gross income)
  • If a borrower has employees: sum of (i) the difference between gross income and employee payroll costs of the borrower in 2019 or 2020, that is not more than $100,000 divided by 12, and (ii) the average total monthly payroll costs for the employees incurred or paid during the same year elected by the borrower x 2.5 (max loan amount of $2 million)
• Schedule C: Based on 2.5x average monthly net self-employment income (not to exceed $100K)
• Loan to a single corporate group cannot exceed $4 million
  • Majority owned, directly or indirectly, by a common parent

 PPP2 Documentation

• No additional documentation to substantiate payroll costs will be required if:
  • Used calendar year 2019 payroll figures to determine PPP1 and PPP2 loans amounts, and
  • The lender is the same
• For loans over $150,000, submit documentation on “gross receipts” decline such as:
  • Relevant tax forms, including annual tax forms, or if relevant tax forms are not available, quarterly financial statements or bank statements
• For loans of $150,000 or less, documentation is not required to be submitted with the loan application but must be submitted on or before the date the borrower applies for loan forgiveness. However, we assume most lenders will require “gross receipts” documentation when applying for PP2 since the “gross receipts” comparison will need to be completed to determine eligibility