Additional Guidance from SBA for PPP Second Draw Loans - What Do I Need and When Can I Apply?

On January 6th the SBA put out additional guidance on the second round of Paycheck Protection Program (“PPP”) loans.  This guidance provided some clarification on the gross receipts test to show a 25% decline and what support could be provided to support it.  The guidance also references a new application form that will be released at some point (SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form)), and as of January 7th it seems this form should be available shortly.  Here is a breakdown of the Interim Final Rule on Second Draw Loans (“the IFR”).

The most significant item the IFR discusses is some clarification on the gross receipts test.  However, it doesn’t answer every question and we’ll either have to wait on more guidance or see what banks request when their application process is ready.  The new application the SBA is working on may also provide some answers.

Some key items about gross receipts:

• The IFR references 13 C.F.R. Section 121.104 of SBA’s size regulations to define gross receipts.
• • All revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source including:
    • Sales of products or services
    • Interest, dividends
    • Rents
    • Royalties
    • Fees
    • Commissions
    • Reduced by returns and allowances
  • Note, forgiveness of a First Draw PPP loan is specifically excluded from gross receipts in the IFR.
  • Gross receipts do not include the following:
    • 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 its domestic or foreign affiliates;
    • and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
  • All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.
  • Gross receipts of a borrower with affiliates is calculated by adding the gross receipts of the business concern with the gross receipts of each affiliate.

The IFR also discusses the options to calculate the total loan amount.  These include using calendar year 2019, which most did for their First Draw PPP Loan, using calendar year 2020, or using the precise 1-year period before the date of when the loan is made.  If you choose the last option, obviously you’ll need to get it as close as possible because you’re not going to know the exact date until the loan is made, and it will be a future date after you apply.

The next key part of the IFR discusses application and documentation requirements.  Here are some of the key items.

• It mentions that the documentation to support payroll calculations is essentially the same as the First Draw PPP loan, so if you use the same lender and use the 2019 calendar year again (meaning that lender already has all your information from the first time) then no additional documentation is required for payroll costs.  However, it does say the lender could always ask for additional information if it wants to.
• For loans over $150,000, gross receipts documentation must be submitted with the application.  This could be:
  • Relevant tax forms, including annual tax forms
  • If relevant tax forms are not available, quarterly financial statements or bank statements
  • For loan under $150,000, you still need to provide this documentation BUT you don’t have to do it until you apply for forgiveness if you choose to wait.

One other item of note is that if you are an “unresolved borrower”, meaning your First Draw PPP Loan is under review by the SBA, then the bank will be notified of that and your Second Draw PPP Loan won’t be able to proceed.  The SBA will work to resolve issues “expeditiously”.  I’m not sure what expeditiously means for the SBA but hopefully it is faster than usual.  It isn’t clear if this will apply to everyone that had a loan over $2 million in the first round and had to fill out Form 3509, which means their loan is under review.  I would recommend applying anyways to get the process started and work through any issues if they come up.  Note, you do not have to have your first loan forgiven to apply for another PPP if you qualify.  The only requirement mentioned in the IFR concerning funds from a First Draw PPP loan are that the borrower “has used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower.”

One unanswered question is what happens with fiscal clients who have annual tax returns that aren’t calendar year periods, and that have quarters that differ from calendar quarters.  It would seem that if you can support a calendar quarter drop then go that route for now for simplicity sake.

After viewing an AICPA Townhall Webinar about this IFR, they mentioned the new application form may be released on January 8th or early the following week.  Per the webinar, the SBA anticipates taking applications sometime the week of January 11th also, however this could always change.  Just because they are taking applications doesn’t mean banks will be ready for you to apply, so check with your banker to see what their timeline might be.  And, get your gross receipts information ready to go.

UPDATE on 1/11/2021:

The SBA has released the Second Draw PPP Loan application – you can find it here.  The SBA has also released an updated First Draw PPP Loan application for entities that may not have taken a loan previously – it is here.  They’ve also released some one-page “top line overview” documents describing the programs – Original PPP (First Draw) Overview and Second Draw Overview.  The SBA is also taking applications as of January 11th from community banks from smaller borrowers that meet certain criteria (minority-owned, women-owned, less than 10 employees) for First Draw Loans.  They will start taking applications for Second Draw Loans on January 13th.  The SBA has said it will open up to other borrowers shortly thereafter without a set date.  However, you ability to submit an application will depend on your bank and we suggest contacting your banker to get a rough idea of when they may start taking applications.  It will be easiest to use the bank that you used for the first PPP loan as they have all your information already and it will expedite the process.  You will need to gather up your support for the gross receipts decline.  Please contact us with any questions.