Second Round PPP Loans

Jan 11, 2021
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Second Round PPP Loans

By: Michele Schlereth, Esq., CPA, MST and Allen Abraham, Esq.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”), passed on December 21, 2020, and follows in the footsteps of its predecessor, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Act provides the opportunity to both first-time borrowers and second-time borrowers to apply for a loan from the Paycheck Protection Program (“PPP”). It also allows borrowers who did not receive the full amount of loan proceeds during the first round of PPP loans, or that returned their loan, to apply for a modification to increase or obtain the full loan they were entitled to.

This second round of loans (“PPP2”) covers a broader set of expenditures. The Act also creates a simplified application process for businesses requesting loans under $150,000. Even with this new Act’s broader scope, small businesses still must meet certain requirements to be eligible for the application. The new deadline to apply for PPP or PPP2 is March 31, 2021.

Changes to Tax Deductions for PPP Loans

A major tax provision in the Act overruled IRS Revenue Ruling 2020-27 which stated expenses utilized to obtain loan forgiveness are not deductible, therefore, any expenses utilized to obtain loan forgiveness in the original or second rounds of PPP are now deductible[1].

Reopened First Draw PPP Loans

A small business that did not apply or receive a PPP loan in its first round of distribution is eligible for PPP2[2] if the business:

  • has 500 or fewer employees[3]; and
  • is either a business concern, nonprofits, veterans’ organizations, sole proprietor, self-employed individuals, and independent contractors.[4]

Reopened Second Draw PPP Loans

A small business that received the initial PPP is eligible for a second round of PPP if the business:

  • employs fewer than 300 employees;
  • has already used or will use the full amount of money granted to them in the initial round of PPP; and
  • can demonstrate that it had a gross receipt decline of 25% or more in any quarter of 2020 when compared to the same quarter in 2019.[5] Documentation to substantiate the gross receipts reduction are anticipated to be detailed in regulations, but we can speculate that acceptable documentation will be informal financial statements or bookkeeping records for the chosen comparison quarters substantiating the reduction. (alternative rules apply if the entity was not in operation during any part of 2019)

Maximum Loan Size

The maximum loan amount that a business can receive under the Act is 2.5 times the average total monthly payroll or $2 million—whichever is smaller. However, in the CARES Act, the maximum loan amount was $10 million—not $2 million; furthermore, in the new Act, any NAICS 72 entity—that is, a business in the accommodation or food services industry—is eligible for up to 3.5 times its average total monthly payroll.[6] Any business that was not yet in operation on February 15, 2020 is entitled to the lesser of the total payroll made thus far divided by the number of months in which those costs were incurred, or $2 million.[7]

PPP Payroll Calculations

The monthly payroll is calculated using the numbers of the year prior to the loan being made or the numbers of the year 2019.[8] PPP2 funds are similar to those available in the first round in that sixty percent of the loan must be spent on payroll for the business’s employees. Additionally, just as in the first round of loans, a business may choose between an eight- or 24-week covered period. This section remains largely the same between this Act and the CARES Act except that the covered period can end on any date between 8 and 24 weeks at the choice of the loan recipient.

Additional Expenses are Covered

The PPP2 loan now covers the following:

  • Covered operation expenditure: which the Act defines as any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses[9].
  • Covered property damage costs: which the Act defines as a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation[10].
  • Covered supplier costs: which the Act defines as an expenditure made by an entity to a supplier of goods for the supply of goods that (A) are essential to the operations of the entity at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order (i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan[11].
  • Worker protection expenditure: which the Act defines as an “operating or capital expenditure to facilitate the adaptation of business activities of an entity to comply with the requirements established or guidance issued by” the Department of Health, the CDC, or OSHA, or any state or local government after March 1, 2020.[12] The Act provides a list of worker protection expenditure examples, which includes but is not limited to the installation of a ventilation system, the expansion of indoor or outdoor space to serve customers, and the erection of physical barriers. The PPP2 loan will also cover face masks for employees and other necessary personal protective equipment (“PPE”).
  • Insurance: is now expanded to include group life, disability, vision or dental insurance[13].
  • Lease obligation: is now replaced by the term rent obligation[14].

PPP Loan Forgiveness

The process of applying for forgiveness for a loan over $150,000 remains the same between this Act and the CARES Act. However, the new Act provides for a shortcut to forgiveness for businesses that receive a loan equal or less than $150,000. The loan will be forgiven if its representative signs and submits to its lender a certification that is less than one page in length which lists: (1) the number of employees the recipient was able to retain because of the covered loan; (2) the estimated amount of the covered loan amount spent on payroll; (3) and the total loan value.[15]


As always, Falcon Rappaport & Berkman LLP is willing and able to assist you with any loan application or forgiveness questions. Our COVID-19 Task Force has worked tirelessly to understand the nuances of both the CARES Act and the new Act, and we take great pride in our ability to provide your company with PPP-related services.

[1] §276(a)(1)(i).

[2] §311(a)(37)(A)(iv)(II).

[3] §311(a)(37)(A)(iv)(I)(aa).

[4] §311(a)(37)(A)(iv)(I).

[5] Id.

[6] § 311(a)(37)(C)(iv).

[7] §311(a)(37)(C)(iii).

[8] §311(a)(37(C)(i).

[9] §304(b)(2)(A)(3).

[10] §304(b)(1)(B)(8)(D)(II).

[11] §304(b)(1)(B)(7).

[12] §304(b)(1)(B)(9)(A).

[13] §308(a)

[14] §304(b)(1)(B)(9)(D)(i)(II).

[15] §307(a)(1)(A).

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

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