The Economic Aid Act, a part of the Consolidated Appropriations Act, 2021, updated the Paycheck Protection Program (PPP) to provide an additional allocation of PPP funding to businesses that were hardest hit by the economic devastation of the COVID-19 pandemic. Under the Economic Aid Act, certain PPP loan recipients are now eligible to apply for an additional allocation of up to $2 million ($4 million for a consolidated corporate group) in PPP funds for their business (Second Draw). The types of businesses or individuals who are eligible for the PPP program have also been updated. Under the updated guidance, in order to qualify for a Second Draw PPP loan, you must meet certain requirements.
Second Draw Eligibility Requirements
- Received a First Draw PPP loan;
- Have used up all of the First Draw PPP loan or will use it up by the time of application;
- Has 300 or fewer employees; and
- Experienced a revenue reduction in 2020 relative to 2019.
To meet the revenue reduction requirements, a borrower must have experienced at least a 25% reduction in revenue in 2020 relative to 2019. An applicant may use two methods to determine a revenue decline by either (1) comparing a borrower’s quarterly gross receipts for one quarter in 2020 to a corresponding quarter in 2019 (i.e. first quarter 2020 revenue was 25% or less compared to first quarter 2019) or (2) for a borrower that was in operation in all four quarters of 2019, such a borrower will be deemed to have experienced a 25% decline in revenue if annual receipts were 25% or less in 2020 in comparison to 2019. Borrowers who qualify under option two will be required to provide tax returns reflecting the applicable 25% or more decline in revenue.
Second Draw Details
Under the Economic Aid Act and applicable regulations, a borrower may obtain a maximum Second Draw PPP Loan in an amount equal to the lesser of two-and-a-half months of the borrower’s average monthly payroll costs or $2 million. For borrowers assigned a NAICS code beginning with 72 (Accommodation and Food Services) at the time of disbursement, the Economic Aid Act provides that the maximum loan amount is equal to three-and-a-half months of payroll costs rather than two-and-a-half months. In order to calculate the applicable time period for calculating a borrower’s payroll cost, a borrower may either use the 12-month period prior to when the loan was made or calendar year 2019. Potential PPP Second Draw recipients would be advised to do both calculations in order to maximize their potential loan amount.
For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. For loans with a principal amount of $150,000 or less, such documentation is not necessarily required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness or upon request, as required under the Economic Aid Act.
The Paycheck Protection Program was a major piece of legislation in 2020 and it appears that it will continue to have a major impact on businesses during 2021. If you have any questions related to the Economic Aid Act or the Paycheck Protection Program please feel free to reach out to our PPP Compliance Team, including Demetrius Robinson at email@example.com or (614) 427-5749.