Congress Authorizes Second Round of PPP Loans (“PPP2”) – How to Apply if You Already Have a PPP Loan

January 12, 2021
By S. John Kelly
Posted in Banking, Creditors’ Rights and Insolvency, Business Services

On December 27th, the President signed the “Consolidated Appropriations Act, 2021” (H.R. 133) (the “Act”).  In the Act, Congress authorized $284B to be used for the second round of the Paycheck Protection Program (“PPP”) loans (called “PPP2”).   Act. Sec. 301.

Requirements if You Already Have a PPP1 Loan

To get a PPP2 loan from an approved SBA Lender, if you already have an existing PPP loan (“PPP1”), you:

  • Must have fewer than 300 employees, including “affiliates” (for hotels and restaurants this limitation is calculated on a per-physical-location basis).
  • Must be in operation on February 15, 2020.
  • Cannot be publicly traded, be primarily engaged in political advocacy or lobbying, or have significant ownership by residents of China (PRC).
  • Must have used (or have a plan to use) all of their original PPP1 loan for approved expenses.
  • Must be able to show a 25% reduction or more in gross revenue in any quarter in 2020 compared to the same quarter in 2019. New businesses, that were not in business for the entire 2019 year, but were in business before February 15, 2020, can use quarterly revenue for a portion of the year.

How Much Can You Borrow under PPP2?

A multiple of average monthly payroll, as adjusted to the excess compensation for highly compensated employees.

  • For most businesses this is annual payroll divided by 12 times 2.5.
  • Borrowers, with NAICS line of business code of 72 (motels and restaurants), can use annual payroll divided by 12 times 3.5.
  • To determine annual payroll, you can use 2019 total annual payroll, or payroll for the 1-year period ending before the date the PPP2 loan is made.

 Other Rules

  • The maximum loan per each entity under “PPP2” is $2 million (it was $10 million under “PPP1”). Each entity can have only one PPP2 loan, so you cannot seek a second PP2 loan.
  • March 31, 2021 is the application deadline for a PPP2 loan.

Loan Forgiveness under PPP2

Generally, the PPP1 loan forgiveness rules also apply to PPP2 loan forgiveness requests.  Sixty percent of the PPP2 loan must be spent on Payroll costs and the remaining 40% must be spent on approved “Other” costs, all spent during the “covered” forgiveness period.  Borrowers can use either an 8-week or a 24-week “covered” forgiveness period.  The “covered” forgiveness period starts when the Lender puts the PPP2 money into your account.   “Payroll costs” includes compensation of up to $100,000 per employee plus certain group benefits: including life, disability, vision and dental benefits.

The “other” category of expenses includes:  rent, mortgage interest and monthly utilities.   However, the following new items were added to the “other” category for the PPP2 program:

  • Payments for software, cloud computing, HR systems, and accounting needs.
  • Repair costs associated with looting or vandalism during 2020 disturbances when such costs were not covered by any insurance.
  • Expenses paid to essential suppliers for essential goods for periods before the PPP2 loan was received. Payments for perishable items can be made either before or after the PPP2 loan is received.
  • PPE and other “facility modification expenditures” to comply with COVID-19 federal health and safety guidelines, such as: sneeze guards, drive-through windows, and HVAC made improvements from March 1, 2020 onward.

Simplified Paperwork for PPP1 and PPP2 Loan Forgiveness

For PPP loans of less than $150,000, PPP Borrowers just have to sign a new, one-page form, certifying the number of employees retained, the amount spent on payroll costs, and the total loan amount.  SBA should have this new form available by the end of January, 2021.  Paper documentation to support the certifications will not have to be supplied to the Lender, but will have to be retained by the Borrower for four years in the event of an SBA audit.

Tax Treatment of PPP2 Loan Forgiveness and Why You Should Consider a PPP2 Loan

See, Tax Treatment of Expenses Paid with PPP Loans and EIDL Advances – Part 3 www.smgglaw.com/blog/tax-treatment-of-expenses-paid-with-ppp-loans-and-eidl-advances-part-3.  Because Congress has agreed to fund approved tax deductions with tax-free money under the PPP2 program, any business that needs a PPP2 loan, and meets the tests above, should consider taking out a PPP2 loan.

For questions regarding this subject, please contact Chris Azzara at cazzara@smgglaw.com  or  S. John Kelly at jkelly@smgglaw.com.