New Rules for the Second Round of PPP Loans

My friend Christopher Klampfer, Kuttin Wealth Management( This email address is being protected from spambots. You need JavaScript enabled to view it.) provides this very informative summary of the implications of the second round of PPP Loans that has just been approved by Congress:

Pending President Trump’s signature on the recently passed COVID-19 relief bill, the new PPP loans (“PPP2”) will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan.  

Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they: 

1. have 300 or fewer employees.
2. have used or will use the full amount of their first PPP loan.
3. can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

PPP2 also makes the forgivable loans available to Section 501(c)(6) business leagues, such as chambers of commerce, as well as certain other statutorily specified organizations, provided that they have 300 or fewer employees and do not receive more than 15% of their receipts from lobbying.  The lobbying activities must comprise no more than 15% of the organization’s total activities and have cost no more than $1 million during the most recent tax year that ended prior to February 15, 2020.  

PPP2 will also permit first-time borrowers from the following groups: 

1. businesses with 500 or fewer employees that are eligible for other SBA small business loans.
2. sole proprietors, independent contractors, and eligible self-employed individuals.
3. nonprofits, including churches.

(4) accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location. 

The new program allows borrowers that returned all or part of a previous PPP loan to re-apply for the maximum amount available to them.

As with the preceding PPP loans, the costs eligible for loan forgiveness under PPP2 include payroll, rent, covered mortgage interest, and utilities.  PPP2 also makes the following potentially forgivable:

1. covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
2. expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations. 
3. covered operating costs such as software and cloud computing services and accounting needs.

To be eligible for full loan forgiveness, PPP2 borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or twenty-four weeks, just as in the original PPP.  PPP2 borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum.  PPP2 borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.

Notably, PPP2 loans of $150,000 or less can follow a simplified forgiveness process.