Second Draw PPP Loan

The President has signed the Covid-19 relief legislation, which means that there is an opportunity for businesses to seek a second loan under the Paycheck Protection Program (PPP).

Some things will remain the same with this second iteration of the PPP. The maximum amount of the loan will be equal to 2 and a half months of payroll (this can be based on 2019 payroll OR the one-year period prior to the loan). If you spend the loan on certain authorized expenses during the covered period then the loan can be forgiven (so you do not have to repay it).

But there will be some key differences in the second PPP. The most important of these is that the second draw PPP will be limited to businesses that can show an adverse effect from Covid-19. Nearly all of ASA’s members have been affected by Covid-19 so hopefully this works to the benefit of our members. The manner in which you must show effect is by comparing your 2020 quarterly gross receipts with those of the corollary 2019 quarter. If you can demonstrate that your quarterly gross receipts dropped by 25 percent or more from the corollary 2109 gross receipts for the same quarter, then you meet this prong of the eligibility test. There are also special rules if you were not in business for all of 2019.

We recommend that you simply arrange your gross receipts like this to assess eligibility:

  2019 2020 Subtract the 2020 quarterly gross receipts from the 2019 quarterly gross receipts and divide by the 2019 quarterly gross. If the number is greater than 25% (0.25) then you may be eligible for a second draw PPP Loan.
1st Qtr Q1 gross receipts Q1 gross receipts (2019Q1-2020Q1)/2019Q1
2nd Qtr Q2 gross receipts Q2 gross receipts (2019Q2-2020Q2)/2019Q2
3rd Qtr Q3 gross receipts Q2 gross receipts (2019Q3-2020Q3)/2019Q3
4th Qtr Q4 gross receipts Q4 gross receipts (2019Q4-2020Q4)/2019Q4

Other minor change include a tighter focus on smaller businesses: second draw PPP eligibility will be limited to businesses with fewer than 300 employees. The first round of PPP had a limits of 500 employees.

Payroll, rent and utilities remain allowable expenses for purposes of earning loan forgiveness, and the new law expands the scope of allowable expenditures to include (i) certain operations expenditures, like software that is necessary to facilitate business operation, (ii) uninsured property damage caused by vandalism or looting, (iii) payments to supplier providing essential goods, and (iv) certain worker protection expenses.

The new law also clarifies certain payroll costs. It establishes that group life, disability, vision, or dental insurance are included as part of payroll costs.

The maximum loan for the second draw PPP will be $2,000,000.

One limitation that may affect some ASA members – especially those whose business is focused in China – is a set of second draw PPP limits related to China:

  • If your business enjoys 20% or more ownership by a Chinese entity then your business is excluded from the second draw PPP;
  • If your business enjoys 20% or more ownership by an entity that has significant operations in China (including Hong Kong) then your business is excluded from the second draw PPP [“significant operations in China” is undefined and likely will be defined in the upcoming regulations]; or
  • If your business’ Board of Directors includes a resident of China then your business is excluded from the second draw PPP.

The deadline for second draw PPP application is March 31. The regulations for these new second draw PPP Loans ought to be out soon, and businesses should wait for the new regulations before applying (banks likely will not accept new applications until those regulations have been released).

About Jason Dickstein
Mr. Dickstein is the President of the Washington Aviation Group, a Washington, DC-based aviation law firm. Since 1992, he has represented aviation trade associations and businesses that include aircraft and aircraft parts manufacturers, distributors, and repair stations, as well as both commercial and private operators. Blog content published by Mr. Dickstein is not legal advice; and may not reflect all possible fact patterns. Readers should exercise care when applying information from blog articles to their own fact patterns.

2 Responses to Second Draw PPP Loan

  1. Pingback: PPP Loan Forgiveness: Authorized Expenses Paid With PPP Money Are Deductible | ASA Web Log

  2. Pingback: Applications Are Opening for PPP2 Forgivable Loans | ASA Web Log

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