New Guidance Related to PPP2 Funding

Published on: 01/08/2021 By: GSG

On January 6, 2021, the SBA published guidance in the Paycheck Protection Program (PPP) that has clarified both loans that were received in the first cycle (PPP1) and what can be expected in the second cycle (PPP2) that will probably start late next week at the earliest.

In PPP2, for those who received loans from PPP1, to qualify they must have less than 300 employees and have a 25% decline in gross receipts in any quarter in 2020 compared to the same quarter in 2019.  Funds received under the PPP or Economic Injury Disaster Loan Program (EIDL) are not included in gross revenues for 2020.  If simpler, an applicant can use the gross receipts for 2020 compared to 2019 if it shows a 25% decline.

Loans under PPP2, like PPP1 are based on annual payroll of the business, and the applicant can choose to use either 2019 or 2020 payroll costs to determine the loan request.  For most businesses, the loan will be 2.5 times the average monthly payroll, though businesses in the restaurant and hotel industries (those with a NAICS Code starting with “72”) the request is 3.5 times.  The maximum loan under PPP2 is $2 million with an additional cap of $4 million for businesses that are part of a single corporate group.

The documentation for PPP2 will be comparable to the documentation required in PPP1.  If using the same lender, some documentation will be needed, but repetitive information will not have to be submitted again.  For example, if you are using 2019 payroll data for the loan request, and you use the same lender as PPP1, then you do not need to send the 2019 payroll information since it was previously provided to the lender.

For PPP2 loans of $150,000 or less, the submission of the 25% reduction in gross receipts is not required until the forgiveness application, and for loans of greater than $150,000 you will need to submit quarterly financial statements, annual financial statements, 2020 tax returns or 2020 bank statements.

Applicants will need to certify several things to apply for PPP2:

  • Applicant will not receive another PPP2 loan.
  • Applicant has used or will use the PPP1 loan only for eligible expenses.
  • Applicant is not an ineligible entity.

As for the loan forgiveness, the following costs are eligible:

  • Payroll costs (including group life, disability, vision, or dental)
  • Mortgage Interest
  • Rent
  • Utility Payments
  • Covered worker protection expense
  • Supplier costs that are essential to an applicant’s business
  • Operational expenses such as software, cloud computing and other HR/Accounting
  • Property damages related to 2020 public disturbances not covered by insurance
  • 60/40 split between payroll and other costs. Payroll must be at least 60% but can be more.

Other Highlights:

  • Funds received under PPP1 and PPP2 are not taxable, and the expenses are deductible 100%
  • EIDL will NOT reduce the forgiveness amount of the PPP1 or PPP2
  • EIDL is now open again through 12/31/21, but will very targeted
  • Simplified forgiveness application for loans of $150,000 or less that will be no more than one page
  • Extension of subsidy by SBA for 7(a) loans
  • Grants for shuttered venue operators

Please reach out to GSG for assistance and guidance with these new provisions.

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