Deciphering second-draw PPP funding

Home Columns Al's Column Deciphering second-draw PPP funding

By Roman Basi Business owners can use a variety of tactics simulta­neously as they pursue economic support in the form of a second draw of payroll protec­tion program (PPP) funding. Per advice from the American Institute of Certified Public Accountants (AICPA), borrow­ers may need to act quickly and diligently to fill out forms for a second round of PPP funding.

Some lenders are requiring PPP borrowers to apply for for­giveness on their first-draw PPP loan before they file to seek a second-draw PPP loan. However, according to the Small Business Administration (SBA) and Treasury Department, this is not a requirement. Potential borrow­ers may want to con­sider other lenders to process the sec­ond-draw loan application without the business having to file for forgiveness on its first PPP loan.

Compiling the data that lenders seek is a critical step. Information such as average monthly payroll amounts and (for second-draw PPP borrow­ers) quarterly revenue compar­isons are necessary. Supporting documentation for the average monthly payroll calculation used to calculate the maximum loan amount can be obtained from clients to support those amounts they come up with and will be helpful in the future, as it drove the amount of the PPP funds the borrower received.

Borrowers also need to be aware of updates on PPP forgive­ness and differences between first- and second-draw loans. Potential borrowers should understand that second-draw applications require borrowers to prove they have experienced at least a 25% reduction in gross receipts as a result of the pan­demic by comparing one quarter of 2020 to the same quarter in 2019. New guidance makes cer­tain covered operations expendi­tures, covered property damage costs, covered supplier costs and covered worker protection expenditures eligible for PPP for­giveness.

As of Jan. 20, the SBA and Treasury Department released an updated and simplified version of the PPP Loan Forgiveness application (form 3508S) that can be used by borrowers who received a PPP loan of $150,000 or less. Borrowers are not required to submit any support­ing documentation with the application but are mandated to maintain payroll, non-payroll and other documents that could be requested. The groups also released Form 3508 for entities that received PPP funds in excess of $150,000.

The second round of PPP funding also opens the possibility of funding for entities that were not eligible for the first round, such as certain 501(c)(6) not-for-prof­its. These entities include cham­bers of commerce, destination marketing organizations, certain housing cooperatives and some local media stations. If a borrow­er falls into this category, they should take notice of specific lender restrictions.

Changing guidelines

The rules seem to be constantly changing with regards to PPP loans. For example, recently released guidance explains how both first- and second-draw loan calculations should be evaluated by lenders. The new guidelines also discussed what happens in the event a borrower receives a loan whose amount exceeds their original eligibility.

Business owners should always be aware of possible changes that can be made to the PPP application/forgiveness process. If you have any ques­tions on this subject, please reach out to the professionals at The Center for Financial, Legal and Tax Planning.


Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He co-authored the article with Michael Hampleman, associate attorney.

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