Paycheck Protection Program Second Draw Loans

Schneider Downs continues to track the evolving landscape of federal financial programs offered in the wake of the business disruption caused by the coronavirus crisis. On December 21, the Consolidated Appropriations Act was passed by both houses of Congress. See our article for a high-level summary of its provisions, which include a second round of Paycheck Protection Program loans dubbed Paycheck Protection Program Second Draw Loans (PPP2).

As a follow-up, on January 19th the U.S. Small Business Administration released guidance surrounding maximum loan amounts, how to calculate revenue reduction, and what documentation to provide in determining eligibility and amounts.  Our previous OTO article,  Update to Paycheck Protection Program Second Draw Loans, provides a summary of this update. 

Revenue Reduction

Under PPP2, eligible borrowers must have experienced a reduction of revenue in excess of 25%. While there isn’t anything new in the description of what constitutes revenue reduction, the guidance clarifies the definition for not-for-profit organizations:

“Gross receipts means gross receipts within the meaning of section 6033 of the Internal Revenue Code of 1986, which is the gross amount received by the organization during its annual accounting period from all sources without reduction for any costs or expenses, including, for example, cost of goods or assets sold, cost of operations, or expenses of earning, raising or collecting such amounts”

For borrowers that have received forgiveness of their first-round PPP loans, the guidance explicitly states that the forgiveness should not be included in gross receipts, nor should EIDL advances. No guidance was provided on other CARES Act relief received.

Borrowers are required to submit any of the following documentation to substantiate the 25% reduction of revenue:

  • Quarterly financial statements for the entity. If the statements are not audited, the applicant must sign and date the first page and initial all other pages, attesting to their accuracy. If the statements do not specifically identify the line item(s) that constitute(s) gross receipts, the applicant must annotate which line item(s) do.
  • Quarterly or monthly bank statements for the entity that indicate deposits from the relevant quarters. The applicant must annotate, if it is not already clear, which deposits listed on the bank statement constitute gross receipts (e.g., payments for purchases of goods and services) and which do not (e.g., capital infusions).
  • Annual IRS income tax filings of the entity (required if using an annual reference period). If the entity has not yet filed a tax return for 2020, the applicant must fill out the return forms, compute the relevant gross receipts value, and sign and date the return, attesting that the values entered into the gross receipts computation are the same values that will be filed on the entity’s tax return.

Entities that recognize a fiscal year to file their taxes may document a reduction in gross receipts with income tax returns only if their fiscal year contains all of the second, third and fourth quarters of the calendar year, i.e., they have a fiscal year start date of February 1, March 1 or April 1. The approach is not permissible for others.

Maximum Second Draw PPP Loan Amounts

The guidance also describes the calculation of the following eligible borrowers based on their entity type:

  1. Self-employed with no employees
  2. Self-employed with employees
  3. Self-employed farmer and rancher
  4. Partnerships
  5. Corporations (S-Corp, C-Corp and LLC)
  6. Not-for-profit organizations, veterans’ organizations and tribal businesses

Under the Economic Aid Act, the reference period for payroll costs may be either 2019 or 2020, and borrowers may seek a loan amount that includes employer contributions for employee group health, life, disability, vision and dental insurance. Also, if a borrower is using the same lender and same payroll timeframe it used for its First Draw PPP Loan and already submitted the required documentation to the lender, no additional documentation is required.

If a borrower did not use their calendar 2019 payroll costs for their first-round loan, i.e., they used the preceding 12 months from the date of the loan, the lender may not rely on the information submitted and will need to calculate their maximum PPP2 loan based on the 2019 or 2020 reference period.

Borrowers seeking loans under the NAICS 72 business activity code that left the code box blank in their most recent income tax return should report the industry code that’s most applicable to their primary business activity. Borrowers may only report a NAICS Code beginning with 72 if they can substantiate with alternative documentation, such as permits or licenses issued by local governments that are unique to this sector.

If you need more information or assistance regarding your PPP loan, visit our website at, reach out to any of your contacts at Schneider Downs or contact Joel Rosenthal at [email protected].

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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