Last night, the SBA issued two interim final rules related to the Economic Relief Act. This blog post will focus solely on the “Interim Final Rule on Second Draw Loans”. The other interim final rule, “Interim Final Rule on Paycheck Protection Program as Amended by Economic Aid Act” simply brings all existing interim final rules into one document for ease of review and application. We have covered the various interim final rules issued in 2020 on our blog, which you can find here.
Interim Final Rule on Second Draw Loans
This IFR covers the new Second Draw PPP program (referred as “PPP2” throughout). If you understand the initial PPP program (“PPP1”) then you are well on your way to understanding PPP2 as there are few changes to the new program. Let’s cover what you need to know related to the PPP2 program.
Loan Terms
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No collateral will be required
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No personal guarantees will be required
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Interest Rate = 1%
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Maturity = 5 years
Eligibility Requirements
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Less than 300 employees
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Experienced a gross receipts (see definition below) reduction equal to or greater than 25% in any 2020 quarter compared to the same 2019 quarter
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To simplify this for small business owners that were in operation for all four quarters of 2019, the SBA will allow you to do the calculation based on 2020 versus 2019 as it may be simpler for some business owners to provide the required information to lenders as it is readily available on tax returns
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Borrowers must have received a PPP loan in the first round of the program and have either used or will use the full amount of the first loan on or before the expected disbursement date of the PPP2 loan
Gross Receipts Defined
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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
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Gross Receipts do not include taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees), proceeds from transactions between a concern and it’s affiliates, PPP1 loan forgiveness amounts
Loan Amount Calculation
Calculation mirrors the PPP1 program with the following exceptions:
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You may use calendar year 2019 or 2020 payroll amounts to calculate your average monthly payroll
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NAICS 72 entities will multiply their average monthly payroll amount by 3.5 (all other entities will continue to use 2.5)
Loan Application and Documentation Requirements
No additional documentation to substantiate payroll will be required if the applicant used calendar year 2019 figures to determine its PPP1 loan, used calendar 2019 figures to determine it’s PPP2 loan, and uses the same lender. Lenders are allowed to ask for additional information.
Loans Greater than $150,000
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Applicants must submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. This documentation may include relevant tax forms, quarterly financial statements or bank statements
Loans Less than $150,000
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The documentation requirement noted above for loans greater than $150,000 does not apply at the time the applicant submits its application to the lender. Instead the applicant must provide that documentation on or before the date the borrower applies for loan forgiveness.
This post is not intended to cover all rules and requirements related to the PPP2 program. For example, there are unique rules related to seasonal businesses and those that did not exist for all of 2019. Please ensure you read and understand the rules and requirements of any government assistance program prior to applying for assistance. Ceterus is ready to assist you with your questions related to PPP2 and other government assistance programs. Please reach out to support@ceterus.com with your questions and we will be happy to help.
