Paycheck Protection Program (PPP) Loan Details Released

Posted on January 13, 2021 by Jeff Bostic

A key part of the December 2020 COVID-19 relief bill is a renewal of the Paycheck Protection Program (PPP), including availability of second draw loans for some organizations that got a PPP loan earlier this year. In January 2021, the Small Business Administration and the Department of Treasury issued rulemaking to implement the second draw loan program. Organizations that received a PPP loan earlier this year are eligible to receive a second forgivable loan of up to $2 million if they meet eligibility criteria. The loan application portal is expected to open this week. As with the first round, eligible organizations can apply through most local or national banks.

PPP was first created in March 2020 as a forgivable loan program for small businesses and nonprofit organizations affected by the pandemic. Organizations with 500 employees or fewer were eligible to receive loans up to $10 million that were fully forgivable if certain conditions are met. The application window for these loans closed on Aug. 8, 2020 and no such loan product has been available since then. The December 2020 bill allocated $284 billion for new PPP loans, both initial and second draw.

Under the new relief package, organizations that already have a PPP loan can receive a second forgivable loan of up to $2 million. Organizations are eligible for these loans if they have 300 employees or fewer, have or will use all of the initial PPP loan dollars, and can demonstrate a reduction in gross receipts from 2019 to 2020 of 25% or more. Organizations can demonstrate this either on a quarterly basis, specifically by comparing the same quarters of both years (e.g., third quarter 2019 compared to third quarter 2020) or by comparing gross receipts from the full calendar years of 2019 and 2020. For not-for-profit organizations, gross receipts should be calculated using the same method outlined in the IRS code for tax exempt organizations.

The restriction of these loans to only those organizations with significant decline in revenue will eliminate many long-term care providers from eligibility, but particularly hard-hit providers, such as adult day services sites, will want to take advantage of this important opportunity. Loans can be made up to $2 million or the amount of 2.5 times an organization’s monthly payroll, whichever amount is lower. Payroll is calculated based on a twelve-week period from Feb. 15, 2019 to Feb. 15, 2020.

Similar to the first round of loans, 60% of PPP dollars must be used for payroll costs to secure full forgiveness. The other 40% of loan funds has more flexibility than the initial loans. In addition to utility, rent and mortgage interest costs, funds can go toward operations costs, supplier costs, property damage expenses and worker protection costs (e.g., PPE).