Paycheck Protection Program 2 (PPP2)
At the end of 2020, a new law was passed that provides for additional relief related to the coronavirus (COVID-19) pandemic. This law, the Consolidated Appropriations Act, 2021 (CAA, 2021), includes a second draw of Paycheck Protection Program (PPP) loans (PPP Second Draw Loans). Additionally, the Act reopens the original Paycheck Protection Program by earmarking $35 billion for those who have not yet borrowed.
The Act permits certain smaller businesses who received the original PPP loan to take a PPP Second Draw Loan. To be eligible an entity must meet the following conditions:
- 1. Employ no more than 300 employees per physical location;
- 2. Have used or will use the full amount of their first PPP loan; and
- 3. Demonstrate at lease a 25% reduction in gross receipts in the first, second, third or fourth (if application submitted on or after 1/1/2021) quarters of 2020 relative to the same 2019 quarter.
Eligible entities: For-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
Loan terms: Borrowers may receive a PPP Second Draw Loan of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or in calendar year 2019. However, borrowers in the hospitality or food services industries (NAICS code 72) may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Gross receipts and simplified certification of revenue test: Taxpayers who borrow PPP Second Draw Loans of no more than $150,000 may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the eligible entity meets the applicable revenue (gross receipts) loss requirement.
Loan forgiveness: Like Original PPP loans, PPP Second Draw Loans may be forgiven for payroll costs of up to 60% (with some exceptions) and nonpayroll costs such as rent, mortgage interest, and utilities of 40%. Forgiveness of the loans is not included in income.
If you have any questions related to this, please do not hesitate to contact us for more information.