Economic Aid Act: 10 Things to Know about Second Draw PPP Loans – Update | Schwabe, Williamson & Wyatt PC

Late on January 6, 2021, the Small Enterprise Administration (the “SBA”) and the Division of Treasury launched an Interim Remaining Rule known as “Enterprise Mortgage Program Short-term Adjustments; Paycheck Safety Second Draw Loans” (“Second Draw Guidelines”). These guidelines introduced the implementation of part 311 of the Financial Assist to Onerous-Hit Small Companies, Nonprofits, and Venues Act (the “Financial Assist Act”). The SBA additionally launched an Interim Remaining Rule known as “Enterprise Mortgage Program Short-term Adjustments; Paycheck Safety Program as Amended by Financial Assist Act” (“Consolidated First Draw PPP IFR”). That rule restates current regulatory provisions right into a single regulation on borrower eligibility, lender eligibility, and mortgage software or origination requirement points for brand spanking new First Draw PPP Loans, in addition to common guidelines referring to First Draw PPP Mortgage will increase and mortgage forgiveness. Each guidelines take impact instantly. For extra data on the Consolidated First Draw PPP IFR, see our article What to Know about the Paycheck Protection Program, Round Two.

For functions of this text and the Second Draw Guidelines, first spherical Paycheck Safety Program (“PPP”) Loans are “First Draw PPP Loans” and second spherical loans are “Second Draw PPP Loans.” For the reason that issuance of the Second Draw Guidelines, the SBA in session with the Division of the Treasury has launched additional steerage and types. This text summarizes 10 key gadgets referring to the Second Draw PPP Loans:

1. Deadline and Fund Availability
2. In Common
3. Eligibility Necessities
4. Affiliation
5. Excluded Entities
6. Most Mortgage Quantity; Payroll Value Calculations, Use of Funds
7. Second Draw PPP Mortgage Software, Documentation Necessities, and Certifications
8. Loans to Debtors with Unresolved First Draw PPP Loans
9. Mortgage Forgiveness
10. Steadily Requested Questions and Different Steering

1. Deadline and Fund Availability and Some Lender Necessities:

The final day to use for and obtain a Second Draw PPP Mortgage is March 31, 2021. Debtors ought to contact their lenders to be taught when these lenders will start accepting purposes for Second Draw PPP Loans. Eligible lenders are SBA 7(a) lenders and any federally insured depository establishment, federally insured credit score union, eligible non-bank lender, or Farm Credit score System establishment that’s taking part within the Paycheck Safety Program. On January 8, 2021, the SBA introduced that to advertise entry for smaller lenders and their clients, the SBA will initially solely settle for Second Draw PPP Mortgage purposes from group monetary establishments beginning on January 13, 2021. On January 13, 2021, the SBA introduced that it might open its portal to PPP-eligible lenders with $1 billion or much less in property for Second Draw PPP Mortgage purposes on Friday, January 15, 2021 and the portal will totally open on January 19, 2021 to all taking part PPP lenders to submit Second Draw PPP Mortgage purposes.  At the least $25 billion is put aside for Second Draw PPP Loans to eligible debtors with a most of 10 staff or for loans of $250,000 or much less to eligible debtors in low- to moderate-income neighborhoods. Given these priorities, some debtors might have to attend. After debtors who’re given precedence entry Second Draw Loans, we count on availability shall be on a first-come, first-served foundation, and the funds might go sooner now that forgiveness and tax guidelines are clearer.

It seems that some lenders are requiring PPP debtors to use for forgiveness on their First Draw PPP Mortgage earlier than they file to hunt a Second Draw PPP mortgage. This isn’t a requirement of the SBA and the Division of Treasury. So, debtors ought to talk about this requirement with their lender and if applicable, think about different lenders that may course of the Second Draw PPP Mortgage software with out having to file for forgiveness on their first PPP mortgage. Please word that the SBA does require that the First Draw PPP Mortgage forgiveness software be submitted earlier than or concurrently with the mortgage forgiveness software for a Second Draw PPP Mortgage that’s greater than $150,000.

2. In Common:

Second Draw PPP Loans are typically topic to the identical phrases, circumstances, and necessities as First Draw PPP Loans. These embrace the next:

• The SBA will assure 100% of the Second Draw Mortgage.
• No collateral shall be required.
• No private ensures shall be required.
• The rate of interest shall be 100 foundation factors (1%), calculated on a non-compounding, non-adjustable foundation.
• The maturity is 5 years.
• All loans shall be processed by lenders underneath delegated authority and lenders shall be permitted to depend on certifications of the borrower to find out the borrower’s eligibility and use of mortgage proceeds.

3. Eligibility Necessities:

• Common eligibility necessities: The eligibility necessities for Second Draw PPP Loans are narrower than the eligibility necessities for First Draw PPP Loans. The Financial Assist Act gives {that a} borrower is eligible for a Second Draw PPP Mortgage provided that the borrower meets the entire following eligibility necessities:
  • It’s a enterprise concern, impartial contractor, eligible self-employed particular person, sole proprietor, nonprofit group eligible for a First Draw PPP Mortgage, veterans group, tribal enterprise concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) group or vacation spot advertising and marketing group, or an eligible nonprofit information group;

Please word that the Financial Assist Act added housing cooperatives, eligible 501(c)(6) organizations or vacation spot advertising and marketing organizations, and eligible nonprofit information organizations to the companies which can be eligible for First Draw PPP Loans. Moreover, underneath the Consolidated First Draw PPP IFR and prior steerage, the next industry-specific entities are additionally eligible for First Draw and Second Draw PPP Loans: sure hospitals owned by governmental entities, sure authorized gaming companies, sure electrical cooperatives, and sure phone cooperatives.

• It employs no more than 300 staff, until it satisfies the choice standards for companies with a North American Trade Classification System (“NAICS”) code starting with 72 and eligible information organizations with a couple of bodily location as described within the Financial Assist Act (see under);
• It skilled a income discount in 2020 relative to 2019 (described additional under);
• It obtained a First Draw PPP Mortgage; and
• It has used, or will use, the complete quantity of the First Draw PPP Mortgage (together with the quantity of any enhance on such First Draw PPP Mortgage) on eligible bills underneath the PPP guidelines on or earlier than the anticipated date on which the Second Draw PPP Mortgage is disbursed to the borrower.

• Income discount requirement: To be eligible for a Second Draw PPP Mortgage, the borrower will need to have skilled a income discount of 25% or better in 2020 relative to 2019, which is calculated as follows.
  • Calculation: To find out the discount, the borrower should evaluate the borrower’s quarterly “gross receipts” for one quarter in 2020 with the borrower’s “gross receipts” for the corresponding quarter of 2019. Alternatively, the borrower might evaluate annual gross receipts in 2020 with annual gross receipts in 2019 (see under). For all loans, the suitable reference quarter is determined by how lengthy the borrower was in operation. The Second Draw Guidelines, the applying, and the steerage present {that a} borrower has skilled a discount in calendar yr 2020, measured as follows, if the borrower:
    • had gross receipts through the first, second, third, or fourth quarter in 2020 that show at the least a 25% discount from the borrower’s gross receipts throughout the identical quarter in 2019 (for instance, a borrower that had gross receipts of $50,000 within the second quarter of 2019 and had gross receipts of $30,000 within the second quarter of 2020 skilled a 40% income discount between these two quarters);
    • was not in enterprise through the first or second quarter of 2019, however was in enterprise through the third and fourth quarters of 2019, the borrower had gross receipts in any quarter of 2020 that show at the least a 25% discount from the borrower’s gross receipts through the third or fourth quarter of 2019 (for instance, a borrower that had gross receipts of $50,000 within the third quarter of 2019 and had gross receipts of $30,000 within the third quarter of 2020—demonstrating a discount of 40% from the borrower’s gross receipts through the third quarter in 2019);
    • was not in enterprise through the first, second, or third quarter of 2019, however was in enterprise through the fourth quarter of 2019, the borrower had gross receipts in any quarter of 2020 that show at the least a 25% discount from the fourth quarter of 2019 (for instance, a borrower that had gross receipts of $50,000 within the fourth quarter of 2019 and had gross receipts of $30,000 within the fourth quarter of 2020—demonstrating a discount of 40% from the borrower’s gross receipts through the fourth quarter in 2019);
    • was not in enterprise throughout 2019, however was in operation on February 15, 2020, the borrower had gross receipts through the second, third, or fourth quarter of 2020 that show at the least a 25% discount from the gross receipts of the entity through the first quarter of 2020 (for instance, a borrower that had gross receipts of $50,000 within the first quarter of 2020 and had gross receipts of $30,000 within the fourth quarter of 2020—demonstrating a discount of 40% from the borrower’s gross receipts through the first quarter in 2020); or
    • alternatively, was in operation in all 4 quarters of 2019 and skilled a discount in annual receipts of 25% or better in 2020 in comparison with 2019 and the borrower submits copies of its annual tax types substantiating the income decline. The quantities required to compute such receipts fluctuate by the entity tax return sort:
      • For self-employed people aside from farmers and ranchers (IRS Type 1040 Schedule C): sum of line Four and line 7 (if the borrower information a number of Schedule C types on the identical Type 1040, the borrower should embrace and sum throughout all of them)
      • For self-employed farmers and ranchers (IRS Type 1040 Schedule F): sum of traces 1b and 9
      • For partnerships (IRS Type 1065): sum of traces 2 and eight, minus line 6
      • For S firms (IRS Type 1120-S): sum of traces 2 and 6, minus line 4
      • For C firms (IRS Type 1120): sum of traces 2 and 11, minus the sum of traces Eight and 9
      • For nonprofit organizations (IRS Type 990): the sum of traces 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b, and 12 (column (A)) of Half VIII
      • For nonprofit organizations (IRS Type 990-EZ): sum of traces 5b, 6c, 7b, and 9 of Half I
      • LLCs ought to observe the directions that apply to their tax submitting standing within the reference intervals.

Word: Any of the next included within the particular tax type traces should be excluded from the computation and annotated on the return: taxes collected for and remitted to a taxing authority if included in gross or whole revenue (similar to gross sales or different taxes collected from clients and excluding taxes levied on the priority or its staff); proceeds from transactions between a priority and its home or overseas associates; and quantities collected for an additional by a journey agent, actual property agent, promoting agent, convention administration service supplier, freight forwarder, or customs dealer. Particularly, for tax returns that embrace gross sales tax as revenue after which as a deduction, annotate subsequent to the “taxes and license” line of the return the quantity of such taxes that had been included in revenue.

• • “Gross receipts”: The Financial Assist Act doesn’t embrace a common definition of “gross receipts” for functions of figuring out a borrower’s income discount. The Second Draw Guidelines and subsequent steerage present extra clarifications, as follows:
    • Definition: The Second Draw Guidelines and the applying outline “gross receipts” as follows:
      • “Gross receipts contains all income in no matter type obtained or accrued (in accordance with the entity’s accounting methodology) from no matter supply, together with from the gross sales of services or products, curiosity, dividends, rents, royalties, charges, or commissions, diminished by returns and allowances. Usually, receipts are thought-about ‘whole revenue’ (or within the case of a sole proprietorship, impartial contractor, or self-employed particular person ‘gross revenue’) plus ‘price of products bought,’ and excludes web capital beneficial properties or losses as these phrases are outlined and reported on IRS tax return types. Gross receipts don’t embrace the next: taxes collected for and remitted to a taxing authority if included in gross or whole revenue (similar to gross sales or different taxes collected from clients and excluding taxes levied on the priority or its staff); proceeds from transactions between a priority and its home or overseas associates; and quantities collected for an additional by a journey agent, actual property agent, promoting agent, convention administration service supplier, freight forwarder or customs dealer. All different gadgets, similar to subcontractor prices, reimbursements for purchases a contractor makes at a buyer’s request, funding revenue, and employee-based prices similar to payroll taxes, might not be excluded from gross receipts.”
      • For for-profit companies, the SBA clarified web capital beneficial properties and losses are excluded and that the phrases carry the definitions used and reported on IRS tax types.
    • Gross receipts of associates: Gross receipts of a borrower with associates is calculated by including the gross receipts of the enterprise concern with the gross receipts of every affiliate. If a borrower has acquired an affiliate or been acquired as an affiliate throughout 2020, gross receipts contains the receipts of the acquired or buying concern. This aggregation applies for all the interval of measurement, not simply the interval after the affiliation arose. Nevertheless, the Second Draw Guidelines additionally present that if a priority acquired a segregable division of one other enterprise concern throughout 2020, gross receipts don’t embrace the receipts of the acquired division previous to the acquisition. The gross receipts of a former affiliate should not included. This exclusion of gross receipts of such former affiliate applies throughout all the interval of measurement, somewhat than just for the interval after which affiliation ceased. Nevertheless, if a borrower bought a segregable division throughout 2020, the gross receipts will proceed to incorporate the receipts of the division that was bought that had been obtained previous to the sale. Per the Second Draw Guidelines, all phrases on this subsection have the which means attributed to them by the Inner Income Service. The identical SBA guidelines for figuring out affiliation that utilized to First Draw PPP Loans, together with exemptions relevant to tribal, Alaska Native, and Native Hawaiian organizations, apply to figuring out if the gross receipts of an affiliate have to be accounted for by a borrower when calculating their eligibility for a Second Draw PPP Mortgage.
    • Gross receipts of nonprofits, and so on.: For an eligible nonprofit 501(c)(3) group, a 501(c)(19) veterans group, an eligible nonprofit information group, an eligible 501(c)(6) group, or an eligible vacation spot advertising and marketing group, gross receipts means gross receipts throughout the which means of part 6033 of the Inner Income Code of 1986. The SBA clarified that “gross receipts” are the gross quantity obtained by the group throughout its annual accounting interval from all sources with out discount for any prices or bills together with, for instance, price of products or property bought, price of operations, or bills of incomes, elevating, or accumulating such quantities. “Gross receipts” embrace, however should not restricted to: (i) the gross quantity obtained as contributions, presents, grants, and comparable quantities with out discount for the bills of elevating and accumulating such quantities, (ii) the gross quantity obtained as dues or assessments from members or affiliated organizations with out discount for bills attributable to the receipt of such quantities, (iii) product sales or receipts from enterprise actions (together with enterprise actions unrelated to the aim for which the group qualifies for exemption, the web revenue or loss from which can be required to be reported on Type 990-T), (iv) the gross quantity obtained from the sale of property with out discount for price or different foundation and bills of sale, and (v) the gross quantity obtained as funding revenue, similar to curiosity, dividends, rents, and royalties.
    • Forgiveness quantity or EIDL Advance of the First Draw PPP Mortgage: The quantity of any forgiven First Draw PPP Mortgage or any EIDL Advance, which was not topic to federal revenue tax, is just not included within the calculation of a First Draw PPP Mortgage {that a} borrower obtained in calendar yr 2020 is excluded from a borrower’s gross receipts.
    • Paperwork: The SBA said that the next are the first units of documentation a borrower can present to substantiate their certification of a 25% gross receipts discount (just one set is required):
      • Quarterly monetary statements for the entity. If the monetary statements should not audited, the borrower should signal and date the primary web page of the monetary assertion and preliminary all different pages, testifying to their accuracy. If the monetary statements don’t particularly determine the road merchandise(s) that represent gross receipts, the borrower should annotate which line merchandise(s) represent gross
      • Quarterly or month-to-month financial institution statements for the entity exhibiting deposits from the related quarters. The borrower should annotate, if it’s not clear, which deposits listed on the financial institution assertion represent gross receipts (e.g., funds for purchases of products and companies) and which don’t (e.g., capital infusions).
      • Annual IRS revenue tax filings of the entity (required if utilizing an annual reference interval). If the entity has not but filed a tax return for 2020, the borrower should fill out the return types, compute the related gross receipts worth, and signal and date the return, testifying that the values that enter into the gross receipts computation are the identical values that shall be filed on the entity’s tax Entities that use a fiscal yr to file taxes might doc a discount in gross receipts with revenue tax returns provided that their fiscal yr comprises the entire second, third, and fourth quarters of the calendar yr (i.e., have a fiscal yr begin date of February 1, March 1, or April 1).
    • Steering: See Second Draw Paycheck Protection Program (PPP) Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide (as of January 19, 2021).
  • Sure companies with a couple of bodily location: A enterprise concern that has a couple of bodily location and employs no more than 300 staff per bodily location is eligible to obtain a Second Draw PPP Mortgage if it in any other case meets the eligibility standards and both (a) it’s assigned a NAICS code starting with 72 (Lodging and Meals Companies) (together with inns and eating places) on the time of mortgage disbursement; or (b) it’s a sure sort of reports organizations that make religion certification referring to the proceeds of the loans. The Second Draw Guidelines confirmed that FAQ 24 remains to be good steerage aside from the substitution of 300 staff for 500 staff. As such, if every lodge or restaurant location owned by a mother or father enterprise is a separate authorized enterprise entity and employs no more than 300 staff, every lodge or restaurant location is permitted to use for a separate PPP mortgage offered it makes use of its distinctive EIN.

4. Affiliation:

With sure exceptions, eligibility for Second Draw PPP Loans is ruled by the identical affiliations guidelines (and waivers) as First Draw PPP Loans (see Query 7 of our article What to Know about the Paycheck Protection Program, Round Two). The next entities are exempt from the affiliations guidelines:

• any enterprise concern with no more than 300 staff that, as of the date on which the lined mortgage is disbursed, is assigned a NAICS code starting with 72 (Lodging and Meals Companies);
• any enterprise concern (together with any station that broadcasts pursuant to a license granted by the Federal Communications Fee underneath title III of the Communications Act of 1934 (47 U.S.C. 301 et seq.) with out regard for whether or not such a station is a priority as outlined in 13 C.F.R. § 121.105, or any successor thereto) that employs no more than 300 staff per bodily location of such enterprise concern and is majority owned or managed by a enterprise concern that’s assigned a NAICS code starting with 511110 (Newspaper Publishers) or 5151 (Radio and Tv Broadcasting); and
• any nonprofit group that’s assigned a NAICS code starting with 5151 (Radio and Tv Broadcasting).

5. Excluded Entities:

The next entities are not eligible for a Second Draw PPP Mortgage:

• these entities excluded from eligibility underneath the CARES Act or Consolidated First Draw PPP IFR—see Query 6 of our article “What to Know about the Paycheck Protection Program, Round Two” and PPP Ineligibility Update: Businesses Ineligible for First Draw and Second Draw PPP Loans;
• a enterprise concern or entity primarily engaged in political actions or lobbying actions, as outlined in part Three of the Lobbying Disclosure Act of 1995 (2 U.S.C. 1602), together with any entity that’s organized for analysis or for participating in advocacy in areas similar to public coverage or political technique or in any other case describes itself as a assume tank in any public paperwork;
• any enterprise concern or entity: (i) for which an entity created in or organized underneath the legal guidelines of the Individuals’s Republic of China or the Particular Administrative Area of Hong Kong, or that has vital operations within the Individuals’s Republic of China or the Particular Administrative Area of Hong Kong, owns or holds, straight or not directly, not lower than 20% of the financial curiosity of the enterprise concern or entity, together with as fairness shares or a capital or revenue curiosity in a restricted legal responsibility firm or partnership; or (ii) that retains, as a member of the board of administrators of the enterprise concern, an individual who’s a resident of the Individuals’s Republic of China;
• any particular person required to submit a registration assertion underneath part 2 of the International Brokers Registration Act of 1938 (22 U.S.C. 612);
• any particular person or entity that receives a grant for shuttered venue operators underneath part 324 of the Financial Assist Act;
• any entity by which the President, the Vice President, the top of an Government division, or a Member of Congress, or the partner of such particular person as decided underneath relevant frequent regulation, straight or not directly holds a controlling curiosity (the phrases “Government division,” “Member of Congress,” and “controlling curiosity” are all outlined within the Second Draw Guidelines);
• any publicly traded firm that’s an issuer, the securities of that are listed on an trade registered as a nationwide securities trade underneath part 6 of the Securities Alternate Act of 1934 (15 U.S.C. 78f), the place the phrases “trade,” “issuer,” and “safety” have the meanings given these phrases in part 3(a) of the Securities Alternate Act of 1934 (15 U.S.C. 78c(a)) (with some exception for information organizations);
• an entity that has beforehand obtained a Second Draw PPP Mortgage; or
• an entity that has completely closed.

6. Most Mortgage Quantity; Payroll Value Calculations; Use of Funds:

• Most mortgage quantity:
  • On the whole: The utmost mortgage quantity is 2.5 instances the typical whole month-to-month fee for payroll prices incurred or paid by the borrower throughout 2019 or 2020 (on the election of the borrower); or $2 million, with some exceptions.
  • Debtors with NAICS code starting with 72: For debtors assigned a NAICS code starting with 72 on the time of disbursement, the utmost mortgage quantity is 3.5 instances the typical whole month-to-month fee for payroll prices incurred or paid by the borrower throughout both 2019 or 2020 (on the borrower’s election); or $2 million. For functions of calculating a borrower’s most payroll prices, a borrower might multiply its common month-to-month payroll prices by 3.5 provided that the borrower is within the Lodging and Meals Companies sector and has reported a NAICS code starting with 72 as its enterprise exercise code on its most up-to-date IRS revenue tax return.
  • Seasonal employers: For seasonal employers (which means an employer that doesn’t function for greater than 7 months in any calendar yr, or that through the previous calendar yr has gross receipts for any 6 months of that yr that weren’t greater than 33.33% of the gross receipts of the employer for the opposite 6 months of that yr), the utmost mortgage quantity is 2.5 instances (or 3.5 instances for debtors assigned a NAICS code starting with 72 on the time of disbursement) the typical whole month-to-month funds for payroll prices incurred or paid by the borrower for any 12-week interval between February 15, 2019 and February 15, 2020 (on the election of the borrower); or $2 million.
  • “New entity”: For a “new entity” (which means a borrower that didn’t exist through the 1-year interval previous February 15, 2020, however was in operation on February 15, 2020), the utmost mortgage quantity is 2.5 instances (or 3.5 instances for debtors assigned a NAICS code starting with 72 on the time of disbursement) the sum of the overall month-to-month funds by the borrower for payroll prices paid or incurred by the borrower as of the date on which the borrower applies for the Second Draw PPP Mortgage divided by the variety of months by which these payroll prices had been paid or incurred; or $2 million.
  • Farmers and ranchers: For a farmer or rancher that (a) operates as a sole proprietorship or as an impartial contractor, or is an eligible self-employed particular person; (b) reviews farm revenue or bills on a Schedule F (IRS Type 1040); and (c) was in enterprise as of February 15, 2020, the utmost mortgage quantity is determined by whether or not the borrower has staff. If the borrower doesn’t have staff, the utmost mortgage quantity is 2.5 instances the gross revenue of the borrower in 2019 or 2020, as reported on a Schedule F (IRS Type 1040), that’s not greater than $100,000, divided by 12. If the borrower does have staff, the utmost mortgage quantity is 2.5 instances the sum of (i) the distinction between gross revenue and worker payroll prices of the borrower in 2019 or 2020 (on the election of the borrower), as reported on a Schedule F (IRS Type 1040), that’s not greater than $100,000, divided by 12, and (ii) the typical whole month-to-month fee for worker payroll prices incurred or paid by the borrower throughout the identical yr elected by the borrower; or $2 million.
  • Self-employment: For a borrower that has revenue from self-employment and information a Type 1040, Schedule C, the utmost mortgage quantity is determined by whether or not or not the borrower has staff. If the borrower doesn’t have staff, the utmost mortgage quantity is 2.5 instances (or 3.5 instances for debtors assigned a NAICS code starting with 72 on the time of disbursement) the web revenue of the borrower in 2019 or 2020, as reported on IRS Type 1040 Schedule C, that’s not greater than $100,000, divided by 12. If the borrower does have staff, the utmost mortgage quantity is 2.5 instances (or 3.5 instances for debtors assigned a NAICS code starting with 72 on the time of disbursement) the sum of (i) the web revenue of the borrower in 2019 or 2020 (on the election of the borrower), as reported on an IRS Type 1040, Schedule C, that’s not greater than $100,000, divided by 12, and (ii) the typical whole month-to-month fee for worker payroll prices incurred or paid by the borrower throughout the identical yr elected by the borrower; or $2 million.
  • Partnership: For a borrower that information taxes as a partnership, the utmost mortgage quantity is 2.5 instances (or 3.5 instances for debtors assigned a NAICS code starting with 72 on the time of disbursement) the sum of (i) web earnings from self-employment of particular person common companions in 2019 or 2020 (on the election of the borrower), as reported on IRS Type 1065 Ok-1, diminished by part 179 expense deduction claimed, unreimbursed partnership bills claimed, and depletion claimed on oil and gasoline properties, multiplied by 0.9235, that’s not greater than $100,000, divided by 12; and (ii) the typical whole month-to-month fee for worker payroll prices incurred or paid by the borrower throughout the identical yr elected by the borrower; or $2 million.
  • Single company group: Companies which can be a part of a single company group can not obtain greater than $Four million of Second Draw PPP Loans within the combination. “Company group” has the identical which means as in subsection (B)(4)(f) of the Consolidated First Draw PPP IFR. See Query 10 of our article What to Know about the Paycheck Protection Program, Round Two.
• Payroll price calculations:
  • Payroll prices: Payroll prices encompass compensation to staff (whose principal place of residence is the USA) within the type of wage, wages, commissions, or comparable compensation; money ideas or the equal (based mostly on employer data of previous ideas or, within the absence of such data, an inexpensive, good-faith employer estimate of such ideas); fee for trip, parental, household, medical, or sick go away (besides these paid go away quantities for which a credit score is allowed underneath FFCRA[1] Sections 7001 and 7003); allowance for separation or dismissal; fee for the availability of worker advantages consisting of group well being care protection (together with insurance coverage premiums), group life, incapacity, imaginative and prescient, or dental insurance coverage, and retirement advantages; fee of state and native taxes assessed on compensation of staff; and, for an impartial contractor or sole proprietor, wage, commissions, revenue, or web earnings from self-employment or comparable compensation. “Payroll prices” has the identical which means as for First Draw PPP Loans and is calculated in the identical method. In calculating a borrower’s payroll prices, the borrower should subtract any compensation paid to any worker in extra of $100,000 on an annualized foundation, as prorated for the time interval throughout which the funds are made or the duty to make the funds is incurred. See Query 11 of our article What to Know about the Paycheck Protection Program, Round Two.
  • Common month-to-month payroll: Most debtors will use the typical month-to-month payroll for 2019 or 2020, excluding prices over $100,000 on an annualized foundation, as prorated for the interval throughout which the funds are made or the duty to make the funds is incurred, for every worker. For seasonal companies, new companies, farmers and ranchers, self-employed people, and partnerships, see above.
  • Calculation: A borrower’s common month-to-month payroll prices could also be based mostly on calendar yr 2020, calendar yr 2019, or as in any other case specified above for seasonal employers, new entities, NAICS code 72 debtors, self-employed people, partnerships, farmers, or ranchers. Please word that the Financial Assist Act solely included “the twelve-month interval previous to when the mortgage is made or calendar yr 2019,” however within the Second Draw Guidelines, the SBA and Division of Treasury decided that calculating payroll prices based mostly on “calendar yr 2020” is extra applicable and substituted “calendar yr 2020” for the “twelve-month interval” in most cases.
• Use of funds: On the whole, funds can be utilized to pay payroll prices (together with some advantages), mortgage curiosity, lease, utilities, employee safety prices associated to COVID-19, uninsured property harm prices brought on by looting or vandalism throughout 2020, and sure provider prices and bills for operations. See Query 13 of our article What to Know about the Paycheck Protection Program, Round Two.

7. Second Draw PPP Mortgage Software, Documentation Necessities, and Certifications:

• Software: A borrower should undergo the lender SBA Type 2483-SD (Paycheck Safety Program Second Draw Borrower Software Type) or the lender’s equal type (“Form 2483-SD”). That type was posted on the SBA web site on January 8, 2021.
• Questions: Type 2483-SD units forth eight questions of which a sure reply to (1), (2), (4), or (5) will end result within the mortgage not being accepted:
  • (1) Is the Applicant or any proprietor of the Applicant presently suspended, debarred, proposed for debarment, declared ineligible, voluntarily excluded from participation on this transaction by any Federal division or company, or presently concerned in any chapter?
  • (2) Has the Applicant, any proprietor of the Applicant, or any enterprise owned or managed by any of them, ever obtained a direct or assured mortgage from SBA or every other Federal company that’s (a) at present delinquent, or (b) has defaulted within the final 7 years and brought on a loss to the federal government?
  • (3) Is the Applicant or any proprietor of the Applicant an proprietor of every other enterprise, or have frequent administration (together with a administration settlement) with every other enterprise? If sure, record all such companies (together with their TINs if accessible) and describe the connection on a separate sheet recognized as addendum A.
  • (4) Is the Applicant (if a person) or any particular person proudly owning 20% or extra of the fairness of the Applicant presently incarcerated or, for any felony, presently topic to an indictment, felony data, arraignment, or different means by which formal felony fees are introduced in any jurisdiction?
  • (5) Throughout the final 5 years, for any felony involving fraud, bribery, embezzlement, or a false assertion in a mortgage software or an software for federal monetary help, or throughout the final yr, for every other felony, has the Applicant (if a person) or any proprietor of the Applicant 1) been convicted; 2) pleaded responsible; 3) pleaded nolo contendere; or 4) commenced any type of parole or probation (together with probation earlier than judgment)?
  • (6) Is the USA the principal place of residence for all staff included within the Applicant’s payroll calculation above?
  • (7) Is the Applicant a franchise?
  • (8). Is the franchise listed in SBA’s Franchise Listing? If sure, enter the SBA Franchise Identifier Code.
• Documentation: On the time of submission of a mortgage software, the borrower should submit the next documentation:
• If the lender for the First Draw PPP Mortgage and Second Draw PPP Mortgage are the identical and 2019 payroll data is used: If the borrower doesn’t submit new payroll documentation with its Second Draw PPP Mortgage software as a result of it beforehand submitted 2019 payroll data to the identical lender when it utilized for its First Draw PPP Mortgage, then the lender should verify the borrower’s common month-to-month payroll prices based mostly on that prior documentation.
• Different conditions:
  • Borrower is just not self-employed: The borrower’s Type 941 (or different tax types containing comparable data) and state quarterly wage unemployment insurance coverage tax reporting types from every quarter in 2019 or 2020 (whichever was used to calculate payroll), as relevant, or equal payroll processor data, together with proof of any retirement and worker group well being, life, incapacity, imaginative and prescient, and dental insurance coverage contributions.
  • Partnership: Identical as above and a partnership should additionally embrace its IRS Type 1065 Ok-1s.
  • Self-employed:
    • With staff: If the borrower is self-employed and has staff, the borrower’s 2019 or 2020 (whichever was used to calculate mortgage quantity) IRS Type 1040 Schedule C, Type 941 (or different tax types or equal payroll processor data containing comparable data) and state quarterly wage unemployment insurance coverage tax reporting types from every quarter in 2019 or 2020 (whichever was used to calculate mortgage quantity), as relevant, or equal payroll processor data, together with proof of any retirement and worker group well being, life, incapacity, imaginative and prescient, and dental insurance coverage contributions, if relevant. A payroll assertion or comparable documentation from the pay interval that lined February 15, 2020 should be offered to ascertain the borrower was in operation on February 15, 2020.
    • With out staff: If the borrower is self-employed and doesn’t have staff, the borrower should present (a) its 2019 or 2020 (whichever was used to calculate mortgage quantity) Type 1040 Schedule C; (b) a 2019 or 2020 (whichever was used to calculate mortgage quantity) IRS Type 1099-MISC detailing nonemployee compensation obtained (field 7), bill, financial institution assertion, or e-book of document that establishes that the borrower is self-employed; and (c) a 2020 bill, financial institution assertion, or e-book of document to ascertain that the borrower was in operation on or round February 15, 2020.
    • Loans better than $150,000: For loans with a principal quantity better than $150,000, the borrower should determine the 2020 quarter assembly this requirement, determine the reference quarter, and state the gross receipts quantities for each quarters, in addition to present supporting documentation enough to ascertain that the borrower skilled a discount in income, on the time of software, which can embrace related tax types, together with annual tax types, or, if related tax types should not accessible, a replica of the borrower’s quarterly revenue statements or financial institution statements.
    • Loans as much as $150,000: For loans with a principal quantity of $150,000 or under, the borrower solely should certify that the borrower has met the 25% gross receipts discount on the time of the applying; nevertheless, upon or earlier than searching for mortgage forgiveness (or upon the SBA request), the borrower should present paperwork that determine the 2020 quarter assembly this requirement, determine the reference quarter, state the gross receipts quantity for each quarters, and documentation that helps the quantity offered. Such documentation might embrace related tax types, together with annual tax types, or, if related tax types should not accessible, a replica of the borrower’s quarterly revenue statements or financial institution statements.
  • Certification: A certified consultant of the borrower should make the identical certifications as for a First Draw PPP Mortgage (see Query 17 of our article What to Know about the Paycheck Protection Program, Round Two), besides the borrower should certify:
    • as a substitute of the certification in subsection (B)(12)(v) of the Consolidated First Draw PPP IFR, that the borrower has not and won’t obtain one other Second Draw PPP Mortgage;
    • that the borrower has realized a discount in gross receipts in extra of 25% relative to the related comparability time interval;
    • for loans better than $150,000, that the borrower has offered documentation to the lender substantiating the decline in gross receipts, and for loans as much as $150,000, that the borrower will present documentation substantiating the decline in gross receipts upon or earlier than searching for mortgage forgiveness for the Second Draw PPP Mortgage or upon SBA request.
    • that the borrower obtained a First Draw PPP Mortgage and, earlier than the Second Draw PPP Mortgage is disbursed, can have used the complete mortgage quantity (together with any enhance) of the First Draw PPP Mortgage just for eligible bills.
    • that the borrower is just not an “excluded entity”—see Part 5 above.

8. Loans to Debtors with Unresolved First Draw PPP Loans:

If a First Draw PPP Mortgage is underneath evaluation pursuant to PPP guidelines and/or data in SBA’s possession signifies that the borrower might have been ineligible for the First Draw PPP Mortgage it obtained or for the mortgage quantity obtained by the borrower, the lender will obtain notification from SBA when the lender submits an software for warranty of a Second Draw PPP Mortgage (“unresolved borrower”). If the lender receives notification that the borrower for a Second Draw PPP Mortgage is an unresolved borrower, the lender is not going to obtain an SBA mortgage quantity. The SBA will resolve the difficulty associated to the unresolved borrower expeditiously and can notify the lender of the method to acquire an SBA mortgage quantity for the Second Draw PPP Mortgage, if applicable.

9. Mortgage Forgiveness:

Second Draw PPP Loans are eligible for mortgage forgiveness on the identical phrases and circumstances as First Draw PPP Loans, besides that Second Draw PPP Mortgage debtors with a principal quantity of $150,000 or much less are required to supply documentation with their software for mortgage forgiveness of income discount if such documentation was not offered on the time of the mortgage software. As with First Draw PPP Loans, Second Draw PPP Loans made to eligible debtors qualify for full mortgage forgiveness if through the 8- to 24-week lined interval following mortgage disbursement: (a) worker and compensation ranges are maintained in the identical method as required for the First Draw PPP Mortgage; (b) the mortgage proceeds are spent on payroll prices and different eligible bills; and (c) at the least 60% of the proceeds are spent on payroll prices. Within the Second Draw Guidelines, the SBA indicated that it intends to problem a consolidated rule governing all features of mortgage forgiveness and the mortgage evaluation course of.

10. Steadily Requested Questions and Different Steering:

The FAQs and different steerage issued by the SBA or by the SBA in session with the Division of Treasury with respect to First Draw PPP Loans apply to Second Draw PPP Loans, besides as in any other case offered within the Second Draw Guidelines. The SBA might present additional steerage, if wanted, via SBA notices and a packages information, that are to be posted on the SBA and the Department of Treasury’s web sites.

[1] Households First Coronavirus Response Act.

— to www.jdsupra.com

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