New SBA Guidance on "Second Draw" PPP Loans

The Small Business Administration (SBA) issued guidance on "second draw" PPP loans on January 6, 2021. The SBA has also issued a one-page application form for "second draw" PPP loans. This material provides clarification of the rules set out in the initial GCT Alert on this topic.

The highlights include:

  1. Second draw PPP loans (that is, loans to applicants that also were granted loans under the initial CARES Act PPP program effective March 27, 2020) are available only to applicants who were in business on February 15, 2020, and who also have utilized their CARES Act PPP loan proceeds in full on eligible expenses.

  2. Second draw applicants must have no more than 300 employees per physical location.

  3. A second draw applicant must show a reduction of at least 25 percent in gross receipts in any single calendar quarter of 2020 (compared to the comparable quarter of 2019). Applicants who were in business for all of 2019 may also qualify if they demonstrate an annual reduction in gross receipts (2020 compared to 2019) of at least 25 percent. Gross receipts for this purpose exclude forgiven CARES Act PPP loans, and documents such as tax forms, financial statements and bank statements have to be submitted along with a PPP loan application to substantiate gross receipt amounts.

The SBA has also announced to allocate funding provided by the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act to minority, underserved, veteran and women-owned businesses.

The SBA also has dedicated administrative resources to implement this loan program, including setting aside hours dedicated to process and assist the smallest PPP lenders with their PPP loans, and outreach to encourage lenders owned by minorities, women and veterans to become PPP lenders.

We can expect that additional details about the new round of PPP loans will emerge. GCT will continue to provide alerts and commentaries to provide up-to-date information on developments that impact our clients and the business community.

Do not hesitate to contact your GCT lawyer for guidance on how the new PPP loan program can help you and your business as the COVID-19 pandemic continues.