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 revised (SBA) Paycheck Protection Program (PPP) loan, specifically as it relates to second draw (PPP2) loans available under the revised PPP.

The two IFRs titled Paycheck Protection Program as Amended by Economic Aid Act (Consolidated First Draw PPP IFR) and Paycheck Protection Program Second Draw Loans (PPP Second Draw Loans IFR), clarify some of the unanswered questions based on the reading of the Consolidated Appropriations Act, 2021 that authorized the revisions to the PPP and also allowed PPP2 loans. The Consolidated First Draw PPP IFR recaps the PPP program and provides some clarification around certain issues. The PPP Second Draw Loans IFR sets forth the key differences applicable to PPP2 loans and explains the loan terms, eligibility requirements, and application process for PPP2 loans.

Below we have recapped some of the highlights of the two IFRs – this article should be read in conjunction with our original article regarding the revised PPP program.

Issue Clarification
Length of Program PPP loans will be available through March 31, 2021 – this means that the window could be fairly short, just over two months, for borrowers to obtain a PPP loan.
PPP2 loans are Subject to Same Rules as PPP loans PPP2 Loans are subject to the Consolidated First Draw PPP IFR and all PPP loan program requirements, except as specified in the PPP Second Draw Loans IFR.
25% Reduction – Additional Way to Determine It The IFR appears to allow for an alternative method for proving a 25% decline that allows a borrower to compare their 2019 tax return to their 2020 tax return to prove a year over year 25% decline. The theory being if the entire year has declined by 25% or more that at least one quarter must have experienced that decline. Practically speaking, however, most borrowers will not be able to have their tax returns prepared in time to apply.

  • A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. This provision will allow a borrower to provide annual tax return forms to substantiate its revenue reduction.
Definition of In Operation as of February 15, 2020 A borrower is considered to have been in operation on February 15, 2020, if 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

Options to Determine Average Monthly Payroll for Max Loan Calculation Able to use calendar year 2020 as an option for determining average monthly payroll. This means a borrower has three options to choose from: (1) 2019 calendar year, (2) 2020 calendar year or (3) the 12 months prior to applying for the loan.
Documents to be Submitted with the PPP Application The IFR clarifies the documents to be submitted with the PPP2 applications.

  • If the borrower is using 2019 payroll as the basis for the PPP2 loan and is also applying to the same lender then no additional payroll documentation is required. In theory, the lender already has this documentation.
  • Borrowers with PPP2 loans in excess of $150,000 have to provide proof of their revenue decline at time of application. Borrowers of less than $150,000 have to provide proof of the decline not later than date of forgiveness application (or at the SBA’s request if no forgiveness application is filed)
Ability to Obtain a PPP2 Loan if PPP Loan is Under Review If borrower’s PPP loan is under review by the SBA and/or information in SBA’s possession indicates that the borrower may have been ineligible for the PPP it received or for the loan amount it received, the borrower will have to wait until the issue related to its 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.

Definition of Gross Receipts 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.
How a Borrower Proves NAICS 72 (Thus Ability to Use a 3.5 Multiplier) 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.
$4 Million Single Corporate Group Limit 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.


Reopening Date

On January 8, 2021, the SBA announced the PPP will reopen on Monday, January 11, 2021, with stipulations. Lending to first-time PPP borrowers will begin Monday for those applying with community financial institutions. On Wednesday, January 13, 2021, small businesses applying for a second PPP loan will be allowed to apply but again limited to community financial institutions. The SBA indicated the PPP will then be opened up to all participating lenders “shortly thereafter.” Check with your bank to see if they are a “community financial institution.” Even though the SBA portal will be open next week, this does not necessarily mean your bank will be ready to accept applications, so reach out to your lender. Stay tuned for when the rest of the lending institutions will be ready to accept applications.

If you have any questions or wish 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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