Paycheck Protection Program (PPP), Round 2

On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law.  It contains extensions and expansions of the Paycheck Protection Program (PPP), a program included in the Coronavirus Aid, Relief and Economic Security (CARES) Act that allows eligible employers to obtain forgivable loans for certain payroll and non-payroll purposes. The PPP loan application period had ended on August 8, 2020. CAA now authorizes an additional $284 billion towards the PPP and extends the PPP to March 31, 2021. CAA expanded the program to other entities, expanded additional eligible expenses and clarified terms. CAA is also allowing for Second Draw loans for certain smaller businesses that initially received a PPP loan.

First and Second Draw loans

First Draw loans are for those borrowers who have not received a PPP loan before August 8, 2020. Second Draw loans are for eligible small businesses with 300 employees or less, that previously received a First Draw loan and will use or have used the full amount only for authorized uses, and that can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The maximum amount of a First Draw loan and Second Draw loan is $10 million and $2 million, respectively.

PPP Portal Re-Opening

The Small Business Administration (SBA), in consultation with the U.S. Treasury Department (Treasury), has announced the re-opening its PPP loan portal.  On January 15, 2021, PPP-eligible lenders with $1 billion or less in assets may begin submitting First and Second Draw loan applications. On January 19, 2021, the portal will fully open to all participating PPP lenders to submit First and Second Draw loan applications to SBA.

CAA permits certain borrowers to reapply or request an increase to a First Draw PPP Loan approved on or before August 8, 2020. Generally, the increased loan amount may not exceed the maximum loan amount the borrower is entitled to under PPP rules and may not exceed a total of $10 million for an individual borrower or $20 million for a corporate group. Eligible borrowers for increasing a First Draw PPP loan includes the following borrowers for which the SBA has not submitted a forgiveness payment to the lender:

  • Partnerships – the increase may include appropriate partner compensation.
  • Seasonal Employers – a revised method under CAA to determine a seasonal employer’s maximum loan amount may result in a higher loan than under the prior method.
  • Farmers and Ranchers – a revised method under CAA to determine the maximum loan amount for certain farmers and ranchers may result in a higher loan than under the prior method.
  • Borrowers that fully repaid a First Draw PPP Loan before December 27, 2020.
  • Borrowers that returned part of a First Draw PPP Loan before December 27, 2020.
  • Borrowers that did not accept the full amount of a First Draw PPP Loan for which they were approved.

Maximum Loan Amount for First Draw PPP 

The maximum loan amount for a First Draw PPP loan remains at the lower of $10 million or the amount calculated by the payroll-based formula.

Base Period of Maximum Loan Amount 

The SBA’s Interim Final Rule permits new PPP borrowers to use 2019 or 2020 for the purposes of calculating their maximum loan amount. The base period flexibility is to ensure that permissible loan amounts are not reduced due to financial distress experienced in 2020.

Interest Rate

The interest rate will be 1%, non-compounding.

Maturity Date

Five years.

Loan Forgiveness

A loan forgiveness application must be submitted within 10 months after the end of the loan forgiveness covered period. If a loan forgiveness application is submitted within 10 months after the end of the loan forgiveness covered period, payment of principal and interest will be deferred until the date that the amount of forgiveness is remitted by SBA to the lender; otherwise, the borrower must begin paying principal and interest on the first day after the date that is 10 months after the end of the loan forgiveness covered period. 

Loan Forgiveness Application For a PPP Loan of $150,000 or Less. 

On January 19, 2021, SBA and Treasury published the one-page Form 3508S for borrowers that received a PPP loan of $150,000 or less. The form seeks information about the borrower’s loan amount, disbursement date, employee totals, covered period dates, amount of the loan spent on payroll and the amount of the loan for which forgiveness is being sought. Borrowers are not required to submit any supporting documentation with the application but are mandated to maintain payroll, non-payroll and any other documents that could be requested during an SBA loan review or audit.

SBA Form 3508S can be downloaded here.

Please refer to our blog, SBA Has Released the PPP Loan Forgiveness Application, regarding Form 3508 or to SBA Has Revised Forms Reflect PPPFA Law Changes regarding Form 3508EZ.

Use of Loan Proceeds 

For loan forgiveness, a PPP loan may be used for the following:

  • At least 60% of the PPP loan is used for payroll costs
  • Costs for health care, life, disability, vision or dental benefits during period of paid leave and insurance premiums
  • Up to 40% of a PPP loan may be used on non-payroll costs that include:

1. Mortgage interest payments

2. Rent payments

3. Utility bills

4. Interest payments on debt obligations incurred before February 15, 2020

5. Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020

6. Covered operation expenses (payments for software or cloud computing services that facilitate operations, product or service delivery, payroll administration, human resources, sales and billing, or accounting or tracking of supplies, inventory, records and expenses)

7. Covered property damage costs not covered by insurance or other compensation (related to property damage, vandalism or looting due to protests that occurred in 2020)

8. Covered supplier costs

9.Covered worker protection expenses (including personal protective equipment and sanitation requirements due to COVID-19)

Full Loan Forgiveness

To receive full loan forgiveness, at least 60% of loan proceeds must be used for payroll costs with the remaining on non-payroll costs as outlined above.

PPP Loan Forgiven is Not Taxable but Eligible Expenses are Deductible 

The forgiveness of a PPP loan is not treated as taxable income. CAA has also clarified that taxpayers are permitted to deduct the eligible expenses that were paid with the forgiven PPP loans. The state treatment of such expenses may be different from the federal treatment. 

Please refer to our blog, COVID-19 Relief Bill Clarifies Deductibility of Expenses Paid with PPP Loans, for more information about deductible expenses.

If you have any questions please contact us at or your engagement lead member directly.





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