By Angela Bao
January 7, 2021
(Photo credit): Gettyimages.com/kupicoo
Overview of the new conditions and eligibility conditions for PPP Second Draw
On December 27, 2020, President Donald Trump signed another round of COVID-19 relief aids in law. The $ 900 billion package extends unemployment benefits, includes a series of $ 600 stimulus checks and creates a $ 15 billion subsidy program for theaters, museums and performance halls that have lost revenues due to COVID-19, among others.
The bill also includes $ 284 billion in additional funding for the Paycheck Protection Program, known as PPP Second Draw, to help small businesses stay operational and keep workers on the payroll. . New borrowers and old PPP borrowers are eligible, provided they meet the new requirements. The SBA has issued initial guidance and here are some key provisions that have been outlined in the second PPP draw so far.
Preview of the second PPP draw
Although the Second PPP draw has new restrictions on eligibility, most of which do not affect remission for companies that took out loans in the first round, said Matt Vondersaar, senior vice president and credit supervisor in the East of the West Bank. However, for businesses seeking a PPP Second Draw loan, some of the requirements have changed.
Here are some of the main changes:
- Companies cannot have more than 300 employees (in the first round, the maximum size was 500 employees)
- PPP Second Draw also eliminates the alternate size standard for a company’s NAICS code
- Companies must have experienced a decrease of at least 25% in their gross revenues between comparable quarters in 2019 and 2020
- Some housing co-ops, some 501 (c) (6) nonprofits and news / information organizations (which have a size limit of 500 employees) are now also eligible
- The period covered can be any period between eight weeks or 24 weeks after the loan is granted (for example, companies can choose to use a covered period of 13 weeks)
- EIDL advances are no longer deducted from the recoverable PPP amount
- A canceled loan will not be considered taxable income
- Congress also clarified that companies can take corporate tax deductions for expenses paid by the PPP loan
- Simplified remittance process for loans of $ 150,000 or less
New loans are also more limited, with a maximum amount of $ 2 million, compared to $ 10 million in the first round. However, Vondersaar notes that “this (second loan) is available even though your borrower has already received a $ 10 million PPP loan; they can get another PPP loan up to $ 2 million. The maximum loan amount a business is entitled to will always be calculated as 2.5 times its average monthly payroll, he adds.
However, as part of the second drawdown of the PPP, businesses in the accommodation and food services industries calculate their loan eligibility amount differently. “If you are in this industry with the NAICS code starting with 72, then the average will be 3.5 times your average monthly payroll,” says Vondersaar. “So these people get another month, basically, of payroll for their loan amount. ”
Main changes to PPP Second Draw
Forgivable expenses
The second drawdown of the PPP still requires 60% of the loan to be spent on salary expenses, but the law has expanded the eligible expenses.
“Everything is the same, except they made it clear that you can include employer paid life insurance, disability insurance, vision and dental,” says Vondersaar.
For non-salary costs, the invoice added new items such as business software and cloud computing expenses for payroll, human resources, and inventory accounting. Vondersaar adds that businesses that were damaged during the 2020 protests can also use PPP funds to cover these costs, but only if the damage was not covered by insurance or other forms of compensation.
Association with China and / or Hong Kong
One of the more stringent changes was that the new bill specifically called companies with ties to China and / or Hong Kong as ineligible for the second PPP draw. However, as was not stated in the first round of PPP, companies that have such ties and received a loan for the first time are still eligible for a discount, says Vondersaar.
“It includes companies with significant operations in one or both regions (China and Hong Kong),” he explains. While there is currently not much definition of what constitutes “material transactions,” Vondersaar says it could mean companies that have a warehouse or factory in China or Hong Kong, or if a substantial part of their activity depends on these regions. .
In addition, any business with Chinese ownership or association, even partial, is not eligible. “Anytime you have a Chinese company or a Chinese owner who directly or indirectly owns 20% of the economic interest in that company, then that company is not eligible for the Second Draw loan,” says Vondersaar. “And any company that retains a board member residing in those regions is not eligible.”
