Page 24 - Investment Advisor March 2021

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By Robert Bloink and William H. Byrnes

Second-Draw PPP Loans: What Advisors

Should Know

Also, key pluses of the latest COVID-19 stimulus relief.

he year-end stimulus pack-
age allocated a new round
Tof funding that also includes
funds for “second draw” PPP loans.
Like the original loan program, these
loans are issued on relatively favor-
able terms and can be forgiven if used
for permitted purposes.
The Small Business Administration
began accepting applications in January.
Small-business clients that need addi-
tional financial help may qualify for a
second loan — but it’s important to pay
close attention to the details, which
have changed since the program was
first created.

QUALIFYING FOR SECOND-DRAW
PPP LOANS
As an initial matter, only businesses with PPP loan even if they haven’t already 25% reduction by comparing annu-
fewer than 300 employees qualify for a spent their first-draw loan proceeds. al receipts in 2020 to 2019. Business
second-draw PPP loan. The law created However, the second-draw loan pro- owners who elect to use this method
an exception for hotels and restaurants ceeds will not be disbursed until the will be required to submit annual tax
assigned an NAICS code beginning with entire first-draw loan has been spent. forms to verify the required decline.
72 — these hard-hit business owners The business must also demonstrate
may qualify if they employ more than at least a 25% reduction in gross receipts DIFFERENCES BETWEEN PPP1 AND PPP2
300 employees in the aggregate, as long in any quarter of 2020, when compared While second-draw PPP loans gener-
as no more than 300 employees work in with the same quarter in 2019. The ally have the same terms and conditions
any one location. SBA rules define “gross receipts” fairly as first-draw loans, there are some key
The business must not be permanent- broadly, to include all revenue from any differences aside from the initial eli-
ly closed (temporarily closed businesses sources, including sales, interest, divi- gibility requirements. First, a business
may apply). Further, the business must dends, rent, royalties, etc. The SBA has can continue to receive up to 2.5 times
have been in operation on Feb. 15, 2020, also clarified that amounts that were its average monthly payroll costs (3.5
to qualify. forgiven for the business’s initial PPP times for hospitality businesses), but all
To receive a second loan, the busi- loan are not included in gross receipts second-draw PPP loans are capped at a
ness must have fully exhausted the for 2020. firm $2 million (rather than $10 million
initial PPP loan proceeds and the pro- Recognizing that very small busi- for first-draw loans).
ceeds must have been spent on eligible nesses might not have quarterly Second-draw borrowers are required
expenses like employee wages, rent and information readily available, if to prove the required revenue reduc- photo_gonzo/Shutterstock
employee health insurance costs. the business existed for all of 2019, tion — while first-draw borrowers were
Note that small-business clients are the SBA will allow the business to generally required only to make a good-
permitted to apply for a second-draw determine whether it experienced a faith certification. Borrowers who

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