Certain Borrowers Who Received a PPP Loan in 2020 May Be Eligible for a Second Forgivable Loan

January 29, 2021

By: Kimberly Klein and Benjamin Danieli

Certain borrowers who received loans under the Paycheck Protection Program (“PPP”) in 2020 may be eligible to receive a second PPP loan (“Second PPP Loan”) if they meet the eligibility requirements set forth in the recently enacted Economic Aid Act, according to two interim final rules (the “Rules”) newly issued by the Small Business Administration (“SBA”) and United States Department of Treasury (the “Treasury”) on January 6, 2021.1  Applications to receive a Second PPP Loan must be submitted by March 31, 2021.2

In addition, eligible borrowers who did not apply for a first PPP loan in 2020 may now also submit an application through March 31, 2021.3

As explained more fully below, to be eligible to receive a Second PPP Loan, borrowers must have: (1) previously received a PPP loan (“First PPP Loan”); (2) used (or will use) the full loan amount from the First PPP Loan on or before receipt of the Second PPP Loan; (3) have 300 or fewer employees; and (4) experienced a 25% revenue reduction in 2020 compared to 2019.

For most eligible borrowers, the maximum Second PPP Loan amount is the lesser of 2.5 months of the borrower’s average monthly payroll costs or $2 million.4

Generally, the Second PPP Loan will be subject to many of the same terms and conditions as the First PPP Loan, including:

  • 100% loan forgiveness if the loan proceeds are used according to the previous payroll and applicable non-payroll cost allocations (60% to 40% respectively);
  • No collateral required;
  • No personal guarantee required;
  • Interest rate of 1% per annum;
  • Loan maturity of 5 years; and
  • Lenders can rely on borrower certifications to determine eligibility and loan forgiveness.

Although most businesses that met the relevant eligibility requirements for First PPP Loans are eligible for Second PPP Loans, there are some new excluded entities as further described below.

A. Eligibility Requirements

1. Receipt and Full Use of the First PPP Loan Proceeds

Borrowers must have both received and used (or can certify that they will use) all First PPP Loan proceeds prior to receiving a Second PPP Loan.  If however, a borrower’s First PPP Loan is under review by the SBA, it may still apply for a Second PPP Loan, but will be considered an “unresolved borrower.”  The SBA will not issue an individual lender an SBA loan number for an unresolved borrower until the issue(s) related to the borrower’s First PPP Loan are resolved.  Under the Rules, the SBA must inform the lender of the borrower’s status at the time the lender submits the application for the borrower’s Second PPP Loan.

According to the SBA, resolution of unresolved borrowers’ issues will be done on an expedited basis.  The SBA will also set aside available appropriations to fund the Second PPP Loan request in the event that the issues are resolved in the unresolved borrower’s favor.

2. Revenue Reduction

In order to be eligible for a Second PPP Loan, borrowers must have experienced a 25% revenue reduction or greater in 2020 as compared to 2019.  This will be determined by comparing the borrower’s quarterly or annual “gross receipts.”

The Rules provides the following guidance in calculating revenue reduction:

“[A] borrower with gross receipts of $50,000 in the second quarter of 2019 and gross receipts of $30,000 in the second quarter of 2020 has experienced a revenue reduction of 40 percent between quarters, and is therefore eligible for a Second Draw PPP Loan.  Borrowers can also compare annual filings to show the 25 percent revenue reduction (assuming all other eligibility criteria are met).”

A borrower that was not in operation for all four quarters of 2019, can still meet the revenue reduction requirement by comparing one quarter in 2019 in which the business was in operation to the corresponding quarter in 2020.  A borrower that was in business for all four quarters of 2019 may additionally use annual gross receipts of its 2020 revenue as compared to its 2019 revenue to show the required 25% reduction.  If a borrower chooses to use annual gross receipts it must substantiate such reduction via submission of its annual tax forms.

"Gross Receipts” is defined to include:

[A]ll revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.  Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.

Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.

All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.5

Acording to the Rules, loan forgiveness amounts the borrower received from the First PPP Loan in 2020 are excluded from gross receipts.

3. Number of Employees

Important changes were made to the affiliation rule, mainly in connection with the restaurant and hotel industry, including bars, caterers and casinos.  When determining a company’s number of employees under the First PPP Loan, the affiliation rule was particularly problematic because it provided that all entities under common ownership were considered affiliated entities.6  As a result, many businesses in the industry were precluded from PPP loan eligibility because, while they did not meet the threshold number of employees in a single location, they often vastly exceeded the threshold across all locations.

Under the Rules, businesses with North American Industry Classification System (“NAICS”) codes beginning with 72 (primarily restaurants and hotels), are now partially exempt from the affiliation rule.  This opens the door for such businesses to receive PPP loans if they do not exceed the threshold number of employees in a single physical location and each physical location applies separately using an individual Employer Identification Number.

The maximum amounts of the loans these businesses are eligible for, however, will still be capped pursuant to new rules regarding corporate groups.  While the maximum loan amount per entity is $10 million for First PPP Loans and $2 million for Second PPP Loans, the Rules provide that “businesses that are part of a single corporate group shall in no event receive more than $4,000,000 of Second Draw PPP Loans in the aggregate.”  The Rules impose a similar restriction on new First PPP Loans capping the corporate group maximum at $20,000,000.  Thus, the corporate group rule provides a cap on the maximum disbursement that affiliated entities may receive.

B. Loan Disbursement

1. Timing for Payroll Calculations and Maximum Loan Disbursement Rules

The relevant time period for calculating payroll costs, for most borrowers, is either: (1) the 12-month period prior to receipt of the Second PPP Loan; or (2) calendar year 2019.  In determining the 12-month period prior to receipt of the Second PPP Loan, borrowers can use the 2020 calendar year to simplify the calculation.

2. Payroll and Non-Payroll Costs

Payroll costs are largely the same as they were under prior iterations of the PPP with minor additions for certain group healthcare benefits.  Such costs now include:

“compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.”

Likewise, the Rules have expanded authorized non-payroll costs.  In addition to certain mortgage and debt interest, rent, and utility payments, additional eligible non-payroll costs now include:

  • Covered operations expenditures, for certain software or cloud computing services;
  • Covered property damage costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation;
  • Covered supplier costs for goods that that: (1) are essential to the operations of the borrower; and (2) are made pursuant to specified contracts, orders, or purchase orders; and
  • Covered worker protection expenditures, which relate to health and safety guidance issued by certain government agencies between “March 1, 2020 and ending the date on which the national emergency with respect to the COVID–19 expires . . .”

3. Documentation Needed

The documentation necessary to substantiate a borrower’s payroll cost calculations with regards to a Second PPP Loan are generally the same as that required for the First PPP Loan.  This includes IRS forms for the applicable time period (e.g. 2019 or 2020 calendar year), W-2s, or payroll processor reports, including quarterly and annual tax reports.7

One additional rule has however, eased the documentation requirement for borrowers.  Namely, if an applicant (1) used payroll costs from calendar year 2019 to determine its First PPP Loan, (2) uses 2019 calendar year figures to determine its Second PPP Loan amount (instead of calendar year 2020), and (3) uses the same lender for both applications, no additional documentation is required unless the lender decides otherwise.

Second PPP Loan applicants must still submit documentation to demonstrate the required 25% revenue reduction.  Borrowers requesting loan amounts greater than $150,000 must submit the documentation at the time they apply for the loan, including relevant tax forms, such as annual IRS income tax filings, quarterly financial statements, or quarterly or monthly bank statements.  For loan requests of $150,000 or less, this documentation need not be submitted until the borrower applies for loan forgiveness.

C. Additional Information

1. Lender Requirements

Lenders are generally subject to the same requirements when issuing Second PPP Loans as when they issued First PPP Loans.  Further, all entities that were certified to make First PPP Loans are now also certified to make Second PPP Loans without any additional application.

Notable additional requirements for Second PPP Loans include: (1) recertifying payroll costs, provided that a borrower submits new payroll documentation and does not rely in its previously submitted documentation; and (2) confirming that a borrower’s revenue reduction meets the required 25% reduction threshold by performing a good faith review of the borrower’s submitted documentation.

2. Businesses Not Eligible for Second PPP Loan

Entities that were ineligible to receive a First PPP Loan continue to be ineligible for a Second PPP Loan.8  In addition, several new categories of borrowers were made ineligible to receive First and Second PPP Loans:

  • Businesses and entities primarily engaged in political or lobbying activities as defined in Section 3 of the Lobbying Disclosure Act of 1995 (2 U.S.C. 1602) (including advocacy and “think tank” organizations);
  • Entities organized under the laws of or with specified ties to the People’s Republic of China or the Special Administrative Region of Hong Kong;
  • Any person required to submit a registration statement under Section 2 of the Foreign Agents Registration Act of 1938 (22 U.S.C. 612);
  • A person or entity that receives a grant for shuttered venue operators under Section 324 of the Economic Aid Act;
  • Any entity in which certain members of the United States federal government own, control, or hold at least 20% of any class of equity (including the President, Vice-President, and any Member of Congress or their spouses); and
  • Publically traded companies with securities listed on a national securities exchange as defined under Section 6 of the SEC Act of 1934 (15 U.S.C. 78f).

Eligible borrowers that received a First PPP Loan but subsequently “closed or temporarily suspended its business remain eligible for a Second Draw PPP Loan.”

* * * *

Additional guidance is expected on updated Frequently Asked Questions and SBA appeal procedures and we will continue to keep our client updated.

Please contact Kimberly Klein at (212) 554-7853/kklein@mosessinger.com or Benjamin Danieli at (212) 554-7848/bdanieli@mosessinger.com, if you have any questions regarding the most recent changes.

Please see below for our other alerts on the PPP Program:

This article is current as of January 28, 2020 and reflects the state of the relevant laws, regulations, and guidance to that point.  Any subsequently issued, legislation, rules, and guidance by Congress, the United States Treasury, the Small Business Administration and other various government agencies may change the information contained herein.  While this article is meant as a useful resource concerning matters arising under the Paycheck Protection Program, it should not be considered legal advice for any specific situation.


1 The interim finals rules on the Paycheck Protection Program as Amended by Economic Aid Act (the “Economic Aid Act IFR”) and Second Draw Loans (the “Second PPP Loan IFR”) as well as additional guidance concerning the PPP, are available from the Treasury’s website at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. An additional IFR concerning loan forgiveness was also issued on January 19, 2021.

2 The updated Second PPP Loan application form is available on the SBA’s website here.

3 The updated First PPP Loan application form is available on the SBA’s website here.

4 While the payroll calculations for most borrowers includes 2.5 months of payroll for the Second PPP Loan, the Rules implemented some special modifications for certain categories of businesses.  Notably, NAICS (as defined herein) code 72 businesses, may add an additional month of payroll costs to their loan application, bringing the total to 3.5 months’ worth of payroll costs.  The Rules also implement modifications for farmers, ranchers, seasonal employers, and borrowers not in business for an entire year preceding February 15, 2020.

5 See Second PPP Loan IFR Part III. H.

6 For more information on the history and background of the affiliation rules under the PPP, please see our prior articles:

7 For a complete list of the required documentation, see pages 7 and 8 of SBA Form 3508 (01/21), updated on January 19, 2021.

8 The full list of entities deemed ineligible for PPP loans is available in the Economic Aid Act IFR, Part.III.B.2.