Second Draw PPP Loans - For Borrowers

Latest Updates:

For Sole Proprietors applying for a Second Draw PPP Loan, please find the application here: Second Draw Schedule C Borrower Gross Income Form

Second Draw Loan Application details for all eligibile Small Business Owners.

Application Second Draw IFR Loan

In the preface to the Second Draw IFR,16 SBA states that “Second Draw PPP Loans are generally subject to the same terms, conditions and requirements as First Draw PPP Loans.” These include: 

  • The guarantee percentage is 100%. 
  • No collateral will be required. 
  • No personal guarantees will be required. 
  • The interest rate will be 100 basis points or 1%, calculated on a non-compounding, non- adjustable basis.17 
  • The maturity is five years.
  • All loans will be processed by all lenders under delegated authority and lenders will be permitted to rely on certifications of the borrower to determine the borrower’s eligibility and use of loan proceeds. 

In addition, the documentation required to substantiate an applicant’s payroll cost calculations is generally the same as the documentation required for First Draw PPP Loans (and is described in detail in the section titled “Documentation to Demonstrate Eligibility” below). 

As with the First Draw, most entities may borrow 2.5 times their monthly payroll cost or $2 million (whichever is less). Notably, a borrower in the Accommodation and Food Services sector, with NAICS code beginning with 72 (e.g., restaurant), may borrow 3.5 times its monthly payroll costs. 

Eligibility Requirements for Borrowers for Second Draw PPP Loans 

A borrower is eligible for a Second Draw PPP Loan only if the borrower satisfies all of the following: 

Is a business concern, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization eligible for a First Draw PPP Loan, veterans organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or destination marketing organization, or an eligible nonprofit news organization;18 

Has 300 or fewer employees; 

Exception: A business with a North American Industry Classification System (NAICS) code beginning with 72 and eligible news organizations with more than one physical location (and each location has no more than 300 employees);19 

Experienced a revenue reduction of 25% or greater in 2020 relative to 2019 (as described in the next section of this staff analysis);20 

Previously received a First Draw PPP Loan;21 

Has used, or will use, the full amount of the First Draw PPP Loan (on eligible expenses under the PPP rules) the borrower previously received, in accordance with the First Draw IFR, on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower.22 

The “fullamount” includes the amount of any increase on the borrower’s First Draw PPP Loan made pursuant to the Economic Aid Act.23 

The same affiliation rules that apply to First Draw PPP Loans apply to Second Draw PPP Loans. In most cases, a borrower is considered together with its affiliates to determine eligibility for the PPP. The CARES Act waived the affiliation rules for certain categories of borrowers, and the Small Business Act, as amended by the Economic Aid Act, applies the same waivers to Second Draw PPP Loans, adds a waiver for certain eligible news organizations, and makes adjustments to reflect the reduced sized requirement for Second Draw PPP Loans.24 

Excluded Entities 

An entity that is ineligible to receive a First Draw PPP Loan under the CARES Act or under the First Draw IFR also is ineligible for a Second Draw PPP Loan. 

The Economic Aid Act also prohibits the following from receiving a Second Draw PPP Loan: 

  • Business primarily engaged in political or lobbying activities; 
  • Business created under Chinese or Hong King laws or who has a Chinese resident on the business’ board of directors; 
  • Registered foreign agents;
  • Entity that received a grant for shuttered business operators; 
  • Entity where the President, Vice President, executive agency head, or member of Congress, or spouse of such person, holds a controlling interest in the company; 
  • Publicly traded company; 
  • Previous recipient of a Second Draw PPP Loan; and 
  • Entity that has permanently closed.25 

Calculation of 25% Revenue Reduction 

To be eligible for a Second Draw PPP Loan, the borrower must have experienced a revenue reduction of 25% or greater in 2020 relative to 2019.26 That revenue reduction is to be calculated as follows: 

  • The borrower had gross receipts during the first, second, third, or fourth quarter in 2020 that demonstrate at least a 25% reduction from the applicant’s gross receipts during the same quarter in 2019.27 
  • If the borrower was not in business during the first or second quarter of 2019, but was in business during the third and fourth quarters of 2019: the applicant must have gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the applicant’s gross receipts during the third or fourth quarter of 2019.28 
  • If the borrower was not in business during the first, second, or third quarter of 2019, but was in business during the fourth quarter of 2019: the applicant must have gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the fourth quarter of 2019.29 
  • If the borrower was not in business during 2019, but was in operation on February 15, 2020: the borrower must have gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the gross receipts of the entity during the first quarter of 2020.30
  • A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25% or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.31 

Calculation of Gross Receipts: 

  • Gross receipts includes all revenue in whatever form received or accrued from whatever source. Generally, receipts are “total income” plus “cost of goods sold” and excludes net capital gains or losses. Gross receipts do not include taxes if already included in income, proceeds from transactions between a concern and its affiliates, and amounts collected by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker.32 
  • The amount of any forgiven First Draw PPP Loan shall not be included toward any borrower’s gross receipts.33 

Maximum Loan Amount 

Generally, the maximum amount of a Second Draw PPP Loan is the lesser of 2.5 months of the borrower’s average monthly payroll costs or $2 million.34 As part of the loan process, the borrower must certify that they have provided documentation verifying the number of full-time equivalent employees on payroll at the time of application. 

Unlike First Draw PPP Loans, the relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either (a) the 12-month period prior to when the loan is made, or (b) calendar year 2019.35

The Second Draw IFR provides separate formulas for calculating the maximum amount of a Second Draw PPP Loan provided to the following: 

  • Seasonal employer; 
  • Employer that did not exist during the 1-year period preceding February 15, 2020; 
  • Borrower assigned a NAICS code beginning with 72 (i.e., restaurant); 
  • Farmer or rancher; 
  • Borrower with self-employment income; or 
  • Borrower that files taxes as a partnership.36 

Businesses that are part of a single corporate group may not receive more than $4 million of Second Draw PPP Loans in the aggregate.37

A borrower in the Accommodation and Food Services sector, with NAICS code beginning with 72, may borrow 3.5 times its monthly payroll costs.38

Please reference full guide and outline of here: PPP Loan eligibility and requirements.

Additionally, please find the full list of required here: PPP Application Documents.

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