Last night at 11:30pm, the SBA issued their latest 2 interim rules. One of them is intended to govern new PPP loans made under the Economic Aid Act as well as applications for loan forgiveness on existing PPP loans where the forgiveness payment has not been remitted. It DOES NOT alter or affect the requirements applicable to PPP loans closed prior to the interim final rule’s enactment. The biggest thing it does do is consolidate all of the old interim rules so Borrowers and Lenders only have one place to look for guidance. The 2^nd interim rule provides guidance on PPP 2^nd draws. The application for these 2^nd draws is not available as of the date of this post. See below for highlights from both interim rules.

Items impacting 1^st and 2^nd draw PPP loans

• Loan amounts: 1^st and 2^nd draws can be calculated based off 2019 or 2020 payroll costs.
• Deadline: The deadline for loan applications is 3/31/2021.
• Covered Period: The loan forgiveness covered period can be any length of time between 8 and 24 weeks. Previously, Borrowers had to choose either 8 or 24 weeks. Now the Covered Period could be 12 weeks, 14 weeks, 22 weeks, etc.
  • The alternative covered period is now eliminated since the Borrower can choose any time period within the 8 and 24 week period.
• Forgiveness applications for small loans: Borrowers that received loans of $150,000 or less will have a simplified application. This application is not available yet.
• EIDL Advance: The EIDL Advance Amounts no longer need to be subtracted from any amount of loan forgiveness. Any EIDL Advance Amounts previously deducted from a borrower’s forgiveness amount will be remitted to the lender, together with interest to the remittance date.
• Uses of PPP Funds: Acceptable uses of PPP funds have been extended to include the following—
  • covered operations expenditures: Software, cloud computing, other HR/accounting;
  • covered property damage costs: Costs related to 2020 public disturbances not covered by insurance or other compensation
  • covered supplier costs: Expenditures to a supplier that are essential to the recipient’s current operations
  • covered worker protection expenditures: PPE and costs to comply with COVID-19 federal health and safety guidelines.

Items impacting 1^st draw PPP loans only

• If you are an eligible business that did not receive a PPP loan during the first application process, you’re in luck! The Economic Aid Act set billions of dollars aside for first-time PPP Borrowers.
• Who can apply: Qualifications this time around (must satisfy ALL 5 requirements):
  • Small business; independent contractor, eligible self-employed individual, or sole proprietor; tax-exempt 501(C)(3) nonprofit organization; qualified news organization; a housing cooperative, eligible section 501(c )(6) organization, or eligible destination marketing organization.
  • Less than 500 employees (less than 300 employees for housing cooperatives, 501(c )(6) organization, or destination marketing organization).
  • Principal place of residence is in the United States.
  • In operation on 2/15/20 and had employees.
  • Must still be able to certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing obligations.”
    • If your PPP loan is less than $2 million, then the safe harbor applies to your loan and the SBA will deem you to have made the required certification in good faith.
• Loan amount
  • Lesser of $10 million or 2.5 months of average payroll costs.
  • Calculation =
    • Total payroll costs from 2019 or 2020
    • Less any compensation paid to an employee in excess of $100,000
    • Divided by 12
    • Times 2.5
    • Plus the outstanding amount of an EIDL made between 1/31/20 and 4/3/20 that you want refinanced (don’t include the EIDL advance).
• Required documentation
  • For businesses with payroll:
    • Form 941 and state unemployment returns for each quarter in 2019 or 2020 (whichever is used to calculate the loan) or equivalent payroll processor records.
    • Evidence of any retirement and health insurance contributions.
    • Payroll statement or similar document from the pay period that covered 2/15/20 to establish you were in operation on 2/15/20.
    • 2019 or 2020 Schedule C or F, if applicable.
    • 2019 or 2020 Form 1099-MISC, invoice, bank statement, or book of record that establishes you are self-employed, if applicable.
    • 2019 or 2020 Form 1065 (including K-1s), if applicable.
  • For businesses without payroll:
    • 2019 or 2020 Schedule C or F
    • 2019 or 2020 Form 1099-MISC, invoice, bank statement, or book of record that establishes you are self-employed.
    • 2020 invoice, bank statement, or book of record to establish you were in operation on 2/15/20.
• Application to file
  • SBA Form 2483

Items impacting 2^nd draw PPP loans only

• Qualifications: (must satisfy all 4 requirements)
  • Have received an initial PPP draw
  • Have used or expect to use all funds from the first round before the expected date of the 2^nd disbursement
  • Have 300 or fewer employees
  • Have at least 25% reduction in gross receipts for one quarter in 2020 compared to the same quarter in 2019
    • If annual gross receipts in 2020 were reduced by 25% or more compared to annual gross receipts in 2019 and the Borrower was in business for all 4 quarters in 2019, the Borrower can submit copies of its annual tax returns to substantiate revenue decline.
    • Gross receipts = all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances (per 13 CFR 121.104).
      • Total income plus cost of goods sold on your tax returns.
      • Does not include any PPP loan forgiven in 2020 or any capital gain income/loss.
• Loan amount
  • Lesser of 2.5 months of the borrower’s average monthly payroll or $2 million.
    • 3.5 months for borrowers with NAICS code beginning with 72 (Accommodation and Food Services)
    • Farmers and ranchers payroll cost = gross income less employee payroll costs
• Documentation requirements
  • No new payroll cost documentation required if the first draw and second draw were based off of calendar year 2019 and the Borrower went through the same Lender for both draws.
  • Loans >$150,000: support for revenue reduction. Such documentation may include relevant tax forms, such as annual tax returns, or, if relevant tax forms are not available, quarterly financial statements or bank statements.
  • Loans <$150,000: no support for revenue reduction required until forgiveness is requested.
• Terms
  • Same as 1^st draw loan terms
    • 100% guaranteed
    • No collateral will be required
    • No personal guarantees required
    • 1% interest rate
    • 5 year maturity
• Application to file
  • SBA Form 2483-SD (NOT AVAILABLE YET)

We know we are providing a lot of information here, so, as always, feel free to reach out with any questions you have. Once the SBA has issued the application for the 2^nd draw, we will let you know.