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Paycheck Protection Program Second Draw Loans

January 19th, 2021 • Blog

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Amila Hadzic

On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was signed into law to assist businesses who have been financially impacted by the COVID-19 pandemic. As a result of the Economic Aid Act, the Paycheck Protection Program Second Draw Loans program was created. The Second Draw program will allow the U.S. Small Business Administration to provide eligible businesses with additional loans, which is similar to the Paycheck Protection Program (PPP). The last day to apply for the second draw loan is on March 31, 2021 and there are eligibility and documentation requirements that need to be met during the application process.

Eligibility

This loan can only be made to a business who has received a First Draw PPP loan and has used the full amount of the loan on eligible expenses before the disbursement of the second loan. A business that was ineligible for the first loan cannot receive the Second Draw PPP Loan.

In order to be eligible for this Second Draw PPP Loan, the business must have 300 or fewer employees. The business must have also experienced at least a 25% reduction in revenue in 2020 compared to 2019. The revenue reduction can be calculated by comparing one quarter in 2019 with the same quarter in 2020. However, if the business was not in operation for the full year in 2019, there are other periods that can be used for this calculation. If an entity was in operation for all four quarters in 2019, then the annual revenue can be compared with 2020.

Loan Amount

The maximum loan amount for the second loan is the lesser of $2 million or two and half months of the business’ average monthly payroll. For those who are assigned a NAICS code with 72 or are a seasonal employer, the loan amount can be greater than 2.5 months. The borrower can either use total wages paid in 2019 or wages paid in a 12-month period before the loan was made to calculate average monthly payroll. There is also the option to use 2020 wages.

Application & Documentation

In order to apply for this loan, the SBA Form 2483-SD needs to be completed. Form 941, state quarterly wage unemployment forms for the applicable quarter used, and other payroll records may be needed depending on the payroll period used to calculate the loan amount. For ease of applying for a Second Draw loan, it is recommended that you apply using the same lender, as much less payroll documentation will be needed as it should already be on file with the institution.

The documentation requirements are similar to the first PPP loan. If the loan is greater than $150,000, documentation will be needed to show the revenue reduction at the time of application. Bank statements, annual tax forms, and quarterly financial statements can be provided as documentation. For loans under $150,000, this information can be submitted during the loan forgiveness process.

What if I did not receive a First Draw PPP Loan?

The SBA is also accepting applications for first time PPP borrowers. The loan is capped at $10 million for eligible businesses. If the loan is used to pay for payroll and other eligible expenses during the 8- or 24-week period, it is eligible for forgiveness. Eligible costs for both the Second Draw loan and First Draw PPP loan include payroll costs, business mortgage interest, rent, lease payments, utility payments, worker protection costs, property damage costs due to looting and vandalism not covered by insurance, and other supplier and operation costs. Payments made to an independent contractor do not qualify.

 

Please contact Melanson for any questions or concerns with this process.

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