** This article, originally published on December 23, 2020 has been updated following the signing of the bill into law on December 27, 2020, and the release of new guidance from the U.S. Treasury Department on January 6, 2021.**

On Wednesday January 6, 2021 the U.S. Department of the Treasury released new guidance in the form of two Interim Final Rules (IFR) related to the Small Business Administration’s re-opened, but modified (SBA) Paycheck Protection Program (PPP), including guidance specific to second draw loans (PPP2). The two IFRs titled Paycheck Protection Program as Amended by Economic Aid Act and Paycheck Protection Program Second Draw Loans, clarify some issues and updates to our article based on the IFRs which are highlighted throughout the article.

Many are singing “Joy To The World” this week with the Paycheck Protection Program (PPP) returning “Home For The Holidays.” All holiday puns aside, the revitalization of PPP loans, and the ability for businesses to obtain a second loan, will bring some much-needed liquidity and relief to struggling businesses facing uncertain times as we head into colder months. As we previously recapped, the House and Senate passed legislation that will allow for “Round 2” of the PPP loans (referred to herein as PPP2) and changed the tax deductibility of the PPP expenses (for both the original round of PPP loans [PPP1] and PPP2).

The language allowing for PPP2 is Title III of a 5,593-page bill that includes a variety of stimulus measures and provisions to keep the government open and the specific PPP language is referred to as “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.” In this article, we will examine the most commonly asked questions about PPP2.

Funding – How much money is set aside for PPP2?

Approximately $275 billion of funding for another round of PPP and the ability to repurpose any previously unused PPP funds.

The program will be open through March 31, 2021.

Eligibility – How do I qualify for a PPP loan?

Necessity Still a Factor

As a reminder, the necessity test is still part of the application. A borrower will have to attest to the need for the PPP loan and certify in good faith that the loan request is necessary.

Observation: Prior guidance by the Treasury stated that the necessity question would not be raised for borrowers whose aggregate loans equal less than $2 million. What is not clear is how that interpretation will apply if a borrower had a PPP of $1.2 million and then obtained a PPP2 in the amount of $1.1 million. Thus while not over the limit on an individual basis but over the $2 million on an aggregate basis.

The January 6, 2021 IFR indicated that the $2 million safe harbor threshold would still apply for PPP2 loans; however, what is still unclear is if that is in aggregate or per loan.

Additional Limitations in the PPP

The bill imposes additional limitations for PPP with respect to eligibility (these apply to borrowers seeking a PPP2).

  • Must have been in business as of February 15, 2020
    • A borrower is considered to have been in operation on February 15, 2020, if it either had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC or was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees. A borrower must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable, payroll records, payroll tax filings, Form 1099-MISC, Schedule C or F, income and expenses from a sole proprietorship, or bank records
  • 25% reduction of gross receipts in any one quarter in 2020 as compared to that same quarter in 2019
    • The determination of gross receipts specifically excludes any amounts received under the CARES Act (which would include PPP loan proceeds) or an amendment to the CARES Act
    • The IFRs clarified that Gross Receipts includes 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
    • The IFRs clarified that borrowers may also demonstrate the 25% reduction by comparing their gross receipts from the 2019 tax return to the 2020 tax return
    • If the business was not in business in 2019 but was in business by February 15, 2020, then the business can compare Quarter 2, 3 or 4 of 2020 to Quarter 1 of 2020 to determine if the business qualifies
  • No more than 300 employees or meet an alternative size standard
    • This is headcount similar to before and not FTE
  • There are additional restrictions set forth in the bill including:
    • Lobbying firms and think tanks do not qualify; however, 501(c)6 organization will have access so long as no more than 15% of revenue is related to federal lobbying
    • Restrictions for companies owned 20% or more by companies created under the laws of or have significant operations in or a board member from the People’s Republic of China or significant operations in the Special Administrative Region of Hong Kong may not receive a PPP2 loan.
    • Receiving a grant under the new Shuttered Venues Operators program also makes a business ineligible for a PPP loan
  • Cannot have a PPP Loan Under Review
    • If a borrower’s PPP1 is under review by the SBA and/or information in SBA’s possession indicates that the borrower may have been ineligible for the PPP loan it received or for the loan amount it received, the borrower will have to wait until the issue related to the PPP loan is resolved. These procedures do not disqualify an eligible unresolved borrower from receiving a PPP2 Loan, in recognition that many flags will be resolved in the borrower’s favor the SBA will set aside available appropriations to fund a PPP2 applied for by unresolved borrowers in the event they are approved

Businesses with More than One Location

For businesses with more than one physical location, the business concern can be eligible based on having less than 300 employees per location (similar to amendments to the PPP1). This is of particular interest to restaurants and similar businesses with multiple locations such as gyms and hotels.

Maximum Loan Calculation – How much money can I borrow?

The calculation is similar to the original PPP in that it is a multiple of an average payroll amount, however, with a cap and some nuances.  The new PPP maximum loan amount is the lesser of:

  • 2.5 times the average total monthly payroll (for NAICS 72 companies 3.5 times – see discussion below) or
  • $2 million

Each individual loan is limited to $2 million; however, businesses that are part of a single corporate group by affiliation rules shall receive no more than $4 million of PPP2 loans.

Average monthly payroll is calculated using one of the three metrics (at the option of the borrower):

  • Option 1 – One year period before the date on which the loan is made (for example, if a borrower is applying in February 2021, then the borrower could use February 2020 through January 2021, or if applying in January 2021, then the borrower could use calendar year 2020) or
  • Option 2 – Calendar year 2019 (or fiscal years ending in December 2019) or
  • Option 3 – Calendar year 2020.

Similar to the original PPP, there are alternative calculations for seasonal employers and new entities (i.e. an entity that did not exist for the 1 year period preceding February 15, 2020).

Strategic Consideration: Because the borrower can pick the period, there may be some analysis needed in order to determine which time period would be more beneficial. However, it would seem for a business that qualifies (i.e. had a reduction in revenues) most would likely have lower payroll in 2020 than in 2019. Also, note the expanded definition below of health insurance premiums to be included in payroll costs for determining the maximum loan amount.

Expanded Covered Expenses – How can I spend the money? 

In addition to the expenses previously allowed for under the PPP program (payroll, benefits, rent, utilities, mortgage interest and transportation costs) the bill expands the definition of covered expenses to include:

  • Covered operations expenditures – payment for any business software or cloud 9 computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses
  • Covered property damage costs – means a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
  • Covered supplier costs – means an expenditure made by an entity to a supplier of goods for the supply of goods that:
    • are essential to the operations of the entity at the time at which the expenditure is made; and
    • is made pursuant to a contract, order, or purchase order –
      • in effect at any time before the covered period with respect to the applicable covered loan; or
      • with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan
  • Covered worker protection expenditures – means an operating or capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, with respect to COVID-19 related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement. It may include:
    • Purchase, maintenance or renovation of assets that create or expand
      • A drive-through window
      • Indoor, outdoor or combined air ventilation or filtration system
      • Physical barriers (i.e. sneeze guards)
      • Expansion of indoor, outdoor or combination business facility
      • Onsite or offsite health screening capability or
      • Other assets relating to compliance as described above
    • Purchase of filtering facepiece respirators and other kinds of personal protective equipment
  • Does NOT include residential real property or intangible property

The additional categories provide for some much-needed flexibility for businesses to use the funds in a way that is most beneficial to that particular business.

Further, the bill clarifies that insurance payments that can be included in the payroll definition (including for the calculation of the maximum loan amount) include the following in addition to group health insurance:

  • group life
  • disability
  • vision, or dental insurance

The language in the bill further makes it clear that these expanded categories do apply to original program PPP loans that have not been forgiven stating that “the amendments made by subsections…shall be effective as if included in the CARES Act…and shall apply to any loan made before, on or after the enactment” of the new bill.

Strategic Considerations:

    • The 60/40 payroll to non-payroll ratio is still in effect and businesses must be mindful of this when considering these additional non-payroll expenditures.
    • Further, to the extent a borrower did not think they would be able to achieve full forgiveness because they did not have sufficient qualifying expenses by way of payroll, rent, mortgage interest, and utilities (perhaps due to being shut down), these additional expenses could now be folded into the forgiveness analysis to increase the total qualifying expenses towards forgiveness.

Covered Period – How long do I have to spend it? 

Borrowers can still select from an 8 or 24 week period for the covered period of expenses from the date of origination of the loan (interpreted as funding date).  The good news here is that while the maximum calculation is still 2.5 months (or 3.5 months for NAICS 72 as described below), this time, a borrower does not have to rush to spend their money.

NAICS 72 Special Considerations – What if I am a restaurant, lodging, food services or similar business? 

There are several call-outs in the bill that appear to be very beneficial to restaurants including:

  • Employee eligibility by location as before (see discussion under Eligibility)
  • Maximum loan amount of 3.5 times average monthly payroll as compared to 2.5
  • Affiliation rules do not apply

For purposes of calculating a borrower’s maximum payroll costs, a borrower may multiply its average monthly payroll costs by 3.5 only if the borrower is in the Accommodation and Food Services sector and has reported a NAICS code beginning with 72 as its business activity code on its most recent IRS income tax return.

Simplified Forgiveness for Loans Under $150,000 – My loan is under $150,000, any changes?

There has been much discussion over the past several months about a streamlined or automatic forgiveness process for PPP loans under $150,000. The bill offers some good news for those with loans under $150,000 providing for a streamlined and simplistic approach to forgiveness of PPP loans of $150,000 and under as follows:

  • Signs and submits to the lender a certification which shall not be more than 1 page in length and
  • Requires only that the recipient provide:
    • Description of the number of employees the borrower was able to retain because of the covered loan
    • The estimated amount of the covered loan amount spent by the borrower on payroll costs
    • The total loan value
  • Attests that the borrower has accurately provided certification and complied with PPP requirements and has maintained appropriate records.

A borrower with a loan of less than $150,000 will not be required to submit any additional application or documentation at the time of forgiveness.

The Small Business Administration has 24 days to release the new streamlined application that meets these requirements. When the banks will open up the forgiveness process for those loans under $150,000 remains unclear. There is no obligation in the bill that sets this timeline and it will likely be up to each bank.

Timing – When can I get my loan?

The Small Business Administration has 10 days after the date of enactment to issue regulations to implement out the bill. It is unclear when the banks will open their process but speculation is that it is likely early to mid-January.

Other Information

Audit Plan

Good news for those who have been concerned about the Small Business Administration (SBA) audit process.  The bill also calls for some transparency from the SBA as to what that audit process will look like for borrowers. The SBA, no later than 45 days after the date of enactment is to submit to the Committee on Small Business and Entrepreneurship of the Senate and the Committee on Small Business of the House of Representatives an audit plan that details:

  • Policies and procedures of the SBA for conducting forgiveness reviews and audits and
  • The metrics that the SBA shall use to determine which covered loans will be audited

The SBA then has ongoing reporting obligations to the committees listed above to report forgiveness review and audit activities, which will include:

  • Number of active reviews and audits
  • Number of reviews and audits ongoing more than 60 days and
  • Any substantial changes made to the audit plan previously submitted

Strategic Consideration: For those who have been concerned about the audit process, we would recommend waiting the 45 day period for this report to gain some insight into the process.


Fundamentally, the PPP program is similar to the previous round with some expanded definitions and additional qualifications. Businesses can start getting ready by determining if they are eligible for the loan (see Eligibility section above) and if they are, determining what the appropriate period would be for establishing the maximum loan amount and gathering documents to support that calculation. We also suspect that the decline in gross receipts will have to be established so businesses should consider what documentation would support that decline.

If you have any questions, or to discuss this information in more detail, please reach out to any member of the GBQ PPP team, including Rebekah SmithDustin Minton, or Jeremy Bronson.



Article written by:
Rebekah Smith, CPA, CFF, CVA, MAFF
  Director of Forensic & Dispute Advisory Services
Dustin Minton, CPA, MBA
  Director, Assurance & Business Advisory Services
Jeremy Bronson
  Director, Accounting & Business Advisory Services

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