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Follow up: Second Draw PPP Funding

Application Status:

Right now, only community banks and small regionals can process the Second Draw PPP applications, as of 1/13/21. The application process is open until 3/31/21.

Even so, we have not yet found such a financial institution that is prepared to take applications.

On January 20th, larger banks will be allowed by the SBA to start taking applications.

Basic Qualifications per the SBA:

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses

  • Has no more than 300 employees; and

  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020

Comment: It is our opinion that gross receipts can refer to collections or to actual business income generated with regard to the 25% reduction. If you have more than one business, both do not need to qualify. If your business is close to qualifying, consider reviewing your collections for items that are not directly income or collections from business (such as tax refunds, credits to expenses, re-deposited funds, transfers, refunds, Q1 2019 collections that were deposited in Q2 2019, and the like).

Key FAQs from the SBA website:

Question: My small business is a seasonal business whose activity increases from April

to June. Considering activity from that period would be a more accurate reflection of my

business’s operations. However, my small business was not fully ramped up on February

15, 2020. Am I still eligible?

Answer: In evaluating a borrower’s eligibility, a lender may consider whether a seasonal

borrower was in operation on February 15, 2020 or for an 8-week period between

February 15, 2019 and June 30, 2019.

Question: What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?

Answer: In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019

Question: Should payments that an eligible borrower made to an independent contractor

or sole proprietor be included in calculations of the eligible borrower’s payroll costs?

Answer: No. Any amounts that an eligible borrower has paid to an independent

contractor or sole proprietor should be excluded from the eligible business’s payroll

costs. However, an independent contractor or sole proprietor will itself be eligible for a

loan under the PPP, if it satisfies the applicable requirements.

Comment: Our opinion is that in some cases an employer will be able to use contract labor in the calculation, such as for 2019 contractors converted to employees due to California’s recent legislation AB5, and in some other unique circumstances.

In addition, partner draws from business partnerships are considered a payroll cost for the business entity.

Assistance with your Second PPP Draw application:

Our office is available to assist you with the information you need or to make calculations for you. We can also assist you and your business in the application process.

Simply contact us via email or contact form, to advise us of your request.

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