If you took a Paycheck Protection Program loan in 2020, you know how important it may have been to your business. But these loans only did so much—and now that we’re nine months in on “fifteen days to stop the spread” lockdowns, money might be a bit tight once again. Therefore, in late 2020, Congress approved a new round of funding to help struggling small businesses to overcome the impact of shutdowns. 

Knowing the hiccups that existed in the first round of the Paycheck Protection Program—fraud, ineligible businesses receiving money, and misunderstandings—the second round hopes to be a bit more focused.

SBA Looking to Provide PPP Clarity in Second Round

Understanding this, a recent announcement from the Small Business Administration has sought to clarify the changes in the new PPP, attempting to get on top of the new questions that a new funding round raises.

In their 18-page guide, Second Draw Paycheck Protection Program (PPP) Loans: How to Calculate Revenue Reduction and Maximum Loan Amounts Including What Documentation to Provide, the SBA and Treasury answered potential questions on revenue reduction, maximum loan amounts, and more.

This notice came in addition to three other documents including a 12-page document detailing calculation processes and required documentation for first-draw PPP loans by business type, a procedural notice explaining what PPP borrowers must do if they or their lender made an application error, and another procedural notice establishing the requirements and processes for borrower resubmission of a loan forgiveness application using SBA Form 3508S when forms 3508 or 3508EZ were previously submitted.

Calculating Second-Draw Loan Eligibility

In the latest release, companies seeking a second draw need to provide information. According to the AICPA Journal of Accountancy, the second-draw calculations guidance is structured in the form of 24 questions and answers addressing a variety of situations involving different types of organizations.

  • What Are Gross Receipts? For a for-profit business, gross receipts generally are all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances but excluding net capital gains and losses.
  • Do Gross Receipts Include Forgiven First Draws? The amount of any forgiven First Draw PPP Loan or any EIDL advance, which are not subject to federal income tax, is not included in the calculation of “gross receipts”.
  • What Reference Periods Are Used? Generally, applicants need to demonstrate that gross receipts in any calendar quarter of 2020 were at least 25 percent lower than the same quarter of 2019. However, for businesses that didn’t operate in part or all of 2019, you will need to prove that gross receipts were less than the most recent period.
  • What Documentation Do We Need to Provide? Applicants will need to provide one of the following to substantiate their claims. Quarterly financial statements for the entity, quarterly or monthly bank statements, or IRS income tax filings.

Additional clarification on applications above or below $150,000 and more are available in the document.

PPP Continues to Pose Questions: Stay Tuned for All the Latest

The second round of PPP loans looks to be a bit faster, clearer, and more accurate, but you may see additional processing time as the SBA and Treasury look to reduce fraud by analyzing applications more closely. Stay tuned for additional analysis from the Controllers Council and discuss this with your peers by joining us today!

Additional Resources

Bracing for PPP Forgiveness Applications: What to Know

New FAQs Released to Clarify PPP Forgiveness