Updated PPP Guidance
Rules for Second Draw PPP Loans: The Small Business Administration (SBA) has issued new rules related to the 2nd round of the Payroll Protection Program (PPP). The PPP is discussed on pages 23 to 29 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book.
The new rules refer to loans received under the first round of the PPP as first draw PPP loans, and they refer to loans under the second round of the PPP as second draw PPP loans.
To be eligible for a second draw PPP loan, applicants must have gross receipts during the first, second, third or fourth quarter of 2020 that demonstrate at least a 25% reduction from the applicant’s gross receipts during the same quarter in 2019. The new rules give examples of these calculations and provide special rules for applicants that did not exist during all four quarter of 2019. The new rules also confirm that forgiveness of a first draw PPP loan is not included in an applicant’s gross receipts for 2020.
Instead of showing a quarterly decline in gross receipts, the new rules provide an optional method for demonstrating an applicant’s decline in gross receipts, if the applicant was in existence for all four quarter of 2019. Under this option, the applicant is eligible for a second draw PPP loan if there was a reduction of annual gross receipts of at least 25% in 2020 compared to 2019, as substantiated by copies of the applicant’s annual tax forms.
The new rule indicates that borrowers requesting second draw PPP loans of $150,000 or less do not have to submit documentation of the 25% decline in gross receipts as part of the application process. However, such borrowers will be required to submit such documentation as part of the forgiveness application for the second draw PPP loan.
To be eligible for a second draw PPP loan, the borrower must have spent all of the funds from the first draw PPP loan on eligible expenses (or will spend all of the funds from the first draw PPP loan on eligible expenses prior to the disbursement of a second draw PPP loan.)
The new rules do not require that the borrower apply for or receive forgiveness of the first draw PPP loan before applying for a second draw PPP loan.
The new rules allow applicants to base the second draw PPP loan amount on their 2019 or 2020 payroll amount.
The SBA’s new Interim Final Rule regarding second draw PPP loans is available at: https://home.treasury.gov/system/files/136/PPP-IFR-Second-Draw-Loans.pdf
Updated Rules for First and Second Draw PPP Loans: The SBA separately issued an updated Interim Final Rule governing forgiveness for both first draw PPP loans and second draw PPP loans. The new rules confirm that otherwise eligible applicants who never applied for first draw PPP loans are now permitted to apply for first draw PPP loans.
In addition, the new rules confirm that PPP borrowers who separately received advances from the SBA when they applied for Economic Injury Disaster Loans (EIDL) will not have their PPP forgiveness reduced by the EIDL advance. Advances from Economic Injury Disaster Loans are discussed on page 28 of the Tax Year 2020 M+O=CPE Individual Tax Year-End Workshop Reference Book.
The SBA’s new Interim Final Rule regarding second draw PPP loans is available at: https://home.treasury.gov/system/files/136/PPP-IFR-Paycheck-Protection-Program-as-Amended-by-Economic-Aid-Act.pdf