PPP LOANS 2 —A second opportunity for eligible businesses to obtain forgivable loans | Katten Muchin Rosenman LLP

This notice summarizes the conditions, eligibility and application conditions for the new payment protection program loan (PPP 2 loans) under the Law on Economic Assistance to Small Businesses, Non-Profit Organizations and hard-hit sites, which President Trump signed into law in December 2020.

On December 27, 2020, President Trump enacted the Economic Aid for Small Businesses, Nonprofits, and Hard-Affected Sites Act (Pub. L. 116-260) (Economic Aid Act). Importantly, the Economic Aid Law creates a new Paycheck Protection Program (PPP) loan (PPP 2 loans)1 available to certain eligible entities that have received PPP loans under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) which was enacted on March 27, 2020 (such a prior loan, a PPP 1). PPP 2 loans are available from participating lenders until March 31, unless allocated funds run out earlier.

The Small Business Administration (SBA) and the US Treasury on January 6 issued interim rules implementing the PPP 2 Loan Program (Interim Rules).2 Below is a high level summary of the PPP 2 Lending Program as implemented by the Interim Rules.3

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terms – The conditions of PPP 2 loans are generally the same as those applicable to PPP 1 loans. These conditions are as follows: (1) 100% SBA guarantee; (2) no collateral is required; (3) no personal guarantee is required; (4) an interest rate of one percent; (5) five-year maturity; and (6) lenders can make such loans under the delegated authority of the SBA and rely on the borrower’s certifications regarding eligibility.

Eligibility:

  • Operations – a PPP 2 candidate must (1) have been in business on February 15, 2020, (2) have had a PPP 1 loan where the total amount of this loan has been used or will be used before the disbursement of the PPP 2 loan,4 and (3) have used the proceeds of their PPP 1 loan only for eligible expenses under the PPP program rules in force.
  • Employees – Maximum of 300. PPP borrowers who were eligible for PPP 1 loans on the basis of a “by location” analysis (unique business entities operating with NAICS code 72 – Accommodation and food services) cannot employ more than 300 employees. by physical location for PPP Loan purposes 2.
  • Gross receipts5 – To be eligible, a PPP borrower must show a reduction of at least 25% in gross revenue in the first quarter, second quarter or fourth quarter of 2020, compared to the same quarter in 2019.6 The interim rules also provide that a PPP borrower that was in business for all four quarters of 2019 is deemed to meet this income reduction requirement if it has experienced a reduction in annual income of 25% or more in 2020 compared to 2019, and the borrower submits the annual tax forms justifying such a drop in income. Remission amounts received under PPP 1 loans are excluded from the calculation of a borrower’s gross receipts.
  • Guidelines – Ineligible entities continue to be those set out in 13 CFR § 120.110, with the exception of non-profit organizations and religious institutions. Companies engaged in political and lobbying activities and listed companies are also excluded from participation.seven
  • Membership rules – The membership rules that applied to PPP 1 Loans generally apply to PPP 2 loans. The PPP 1 membership rules relating to companies whose NAICS code begins with 72 (Accommodation and catering) are adjusted to a maximum of 300 employees.8

Maximum PPP loan amount 2 – The calculation is based on 2.5 times the monthly salary expenditure for the year preceding the PPP loan origination, the calendar year 2020 or the calendar year 2019 (or 3.5 times the monthly salary expenditure for PPP borrowers with a NAICS code of 72 – Accommodation and food Services).9 Maximum PPP 2 loan amount: $ 2 million.ten

Eligible expenses – Includes those applicable to PPP 1 loans (salary costs, mortgage payments, rent payments, utility payments) plus the following:

  • (1) covered operating expenses – includes payments for business software or cloud computing;
  • (2) supplier costs covered – includes goods that were essential to the business at the time the expenditure was made and these expenses were made under a contract;
  • (3) worker protection expenses covered – includes expenses necessary to comply with government requirements (including sneeze guards, ventilation systems and outdoor space expansion) and costs of personal protective equipment (these costs can be incurred at any time). time after March 2020); and
  • (4) material damage costs covered – includes costs related to looting or vandalism in 2020 that were not covered by insurance or other compensation.11

Number of loans – Only one PPP 2 Loan can be obtained by a borrower.

Period – No less than eight weeks after origination and no more than 24 weeks after origination.

Economic necessity certification – The borrower must make the same certificate made in the context of a PPP 1 loan (current economic conditions make the loan request necessary).

Forgiveness – All “eligible expenses” (defined above) incurred during the period covered are eligible for the exemption; however, the 60% / 40% ratio for salary costs, relative to other eligible expenses that applied to the PPP 1 loan cancellation calculations, applies to the PPP 2 loan cancellation calculations.

Application requirements – Each PPP 2 lender must use either the SBA application form or create a substantially similar form. According to the interim rules, PPP 2 applicants must also provide documentation to support the 25 percent revenue reduction requirement. This documentation may consist of relevant tax forms, quarterly financial statements or bank statements. PPP lenders are required to perform a “good faith, timely review” of a PPP loan applicant’s calculations and supporting documentation 2.

PPP 1 borrowers whose loans are reviewed by the SBA – When the SBA has information that a PPP 1 borrower may not have been eligible for such a loan, the lender will receive a notice from the SBA when submitting the PPP 2 loan application, and no SBA loan will not be provided until a determination of eligibility is made. was done. The interim rule states that the SBA “will resolve unresolved borrower issues promptly.”

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As of the date of this client alert, it is not possible to determine when PPP lenders will receive PPP 2 requests or when the SBA will begin accepting these requests for processing. In addition, it cannot be determined whether all lenders who have participated in PPP 1 loans will participate in PPP 2 loan program. However, it is likely that PPP lenders participating in PPP 2 program will have to adjust their internal resources to take account of the demand that the program will generate given the limited duration and funding of the program. This potential change in the use of internal resources of lenders can cause a delay in the processing of requests for forgiveness of PPP loans 1.


1 Approximately $ 284 billion is earmarked for PPP loans (PPP1 and PPP2 loans). Note that PPP 1 loans are again available under the conditions set out in the CARES Act (i.e. up to 500 employees; maximum loan amount up to $ 10 million).
3 This summary assumes that the PPP borrower is a business (not a sole proprietor or independent contractor) and eligible for a PPP loan 2 in an amount greater than $ 150,000.
4 SBA rules require that PPP proceeds be disbursed within 10 calendar days of approval.
5 Interim rules generally define “gross revenue” as comprising all income, in whatever form, received or accrued (in accordance with the entity’s accounting policy) from any source, including sales of products or services, interest, dividends, rents, royalties, fees or commissions, less returns and indemnities. Typically, revenue is considered “total income” plus “cost of goods sold”.
6 Different rules apply to companies that were not operational during the relevant periods in 2019.
7 The interim rules provide that companies which have closed permanently are not eligible for a PPP 2 loan. Companies which are “temporarily closed” or which have “temporarily suspended” their activities are however eligible for such loans.
9 Specific rules apply to calculations for seasonal businesses.
10 Companies that are part of the same group of companies cannot receive more than $ 4 million in PPP 2 loans in total.
11 PPP borrowers who have not had their PPP 1 loan canceled may include the newly eligible expenditure in the calculation of their use of PPP funds for authorized purposes.

Robert P. Matthews