Note, to qualify for the “second draw” you must have borrowed money in the first round, a “first draw,” and spent the money.  

If you did not apply for a PPP loan last year, you can now apply for a “first draw” PPP loan – that option is available to you and the banks should accept your application now. 

Here is what we know about the “second draw” PPP loan

Congress passed, the president signed, and now, finally, the Treasury and SBA have released guidance on the new PPP legislation.  We are (rightfully) getting a lot of questions about this new loan, so here are some answers.  

Over the past few weeks, there has been a lot of talk about the new PPP loans and gigabytes of newly minted Youtube videos making the rounds.  But it was only today (January 8, 2021) that the Treasury and SBA released the rules, so please treat earlier instructions with some skepticism.  


And, keep this in mind: these rules are legally subject to a 30-day comment period. However, the program is moving ahead now. This means that we will likely see some changes and tweaks here and there as we go forward with the applications.  


We are here to help; please be patient with the rule changes and inconsistencies that will inevitably arise.  We will update this blog post as information changes.

This video explains application eligibility and the new legislation

https://www.youtube.com/watch?v=ESs7dpYoUrM


In the interim, here is what we know now.  We don’t expect these things to change, but I, for one, learned in 2020 to always expect the unexpected.

This round of PPP loans is a “second draw.” To qualify, you must have received a PPP loan in 2020 (“first draw”) and used all of the funds for qualifying expenses.  

The second draw rules are generally the same as for PPP-1, but there are some changes:

  • The maximum company size has come down: The maximum number of employees per entity is 300 rather than 500. 
  • There is a revenue reduction requirement: You must show a revenue reduction of at least 25% in one quarter in 2020 versus that same quarter in 2019. If you qualify for a loan of less than $150,000, you will not have to document this reduction until you apply for forgiveness. For loans greater than $150,000, you will have to document the reduction when you apply. Your “first draw” PPP loan does not count as revenue.
  • Revenue is defined as Gross Receipts which includes revenue in whatever form, received or accrued (depending on your accounting method) from whatever source including:
    • Sales of products or services.
    • Interest, dividends.
    • Rents
    • Royalties
    • Fees
    • Commissions
  • Revenue does not include funds received from the first draw of the PPP loan.
  • Restaurants and hotels will receive 3.5 times the average monthly payroll: If your NAICS code starts with 72 (basically hotels and restaurants), you qualify for this additional amount. 
  • Other qualifying businesses apply again for 2.5 times the average monthly payroll. 
  • The average monthly payroll can be based on 2019 or 2020. Most businesses will be better off using the same payroll numbers that you used in 2019.  However, the law does allow you to use the 2020 payroll, so if your average payroll increased in 2020, use that.  
  • You will apply through your bank, as you did the first time.  
  • As of January 19 banks are accepting applications. 
  • Forgiveness rules still apply: Second draw loans are eligible for forgiveness under the same conditions as the first draw loans (with the added provision that loans under $150,000 will require the additional documentation noted in point 2 above).
  • There are more categories of qualifying expenses: In addition to payroll, rent, and utilities, the money spent on these expense categories will also qualify for forgiveness:
    • Software and Cloud Software fees. 
    • Property damage costs are NOT covered by insurance. 
    • Supplies essential to business ordered before the covered period. 
    • Perishable goods ordered during the covered period. 
    • Operating or capital expenses to adapt a business to comply with health rules. 

Neither the Treasury nor SBA has released more specific rules regarding exactly what falls into these categories. We expect clarification soon and will keep you informed. 


There are also two big changes to forgiveness that impact the first draw: 

  • There will be a new form for all loans under $150,000, making applying for forgiveness easier and requiring significantly less documentation.  This form is not yet available; we will let you know when it is. 
  • Forgiven PPP loans will not count as income and are not taxable. Additionally, you will be able to write off all of your deductions.  This is new: last year, the IRS instructed us to treat this money as income, and all previous guidance from us (and everyone else) instructed you to treat forgivable loans as income.  This is no longer the case.  

We will keep reviewing the documents and rules as they come out and change and work to keep you informed.  

Be sure to join us on January 19th.