On December 27, 2020, President Trump signed the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the Economic Aid Act) into law to provide continued assistance to individuals and businesses that have been financially impacted by the ongoing coronavirus pandemic. Section 311 of the Economic Aid Act added a new temporary section, 7(a)(37), to the Small Business Act. This new section authorizes the SBA to guarantee Paycheck Protection Program Second Draw Loans under generally the same terms and conditions as the earlier Paycheck Protection Program established under the CARES Act (and subsequently amended).

Under the Economic Aid Act, the SBA will guarantee loans under the PPP Second Draw Program through March 31, 2021, to borrowers that previously received a First Draw PPP Loan, and have used, or will use, the full amount of that loan, for authorized purposes, on or before the expected date of disbursement of the Second Draw PPP Loan. Second Draw PPP Loans are generally guaranteed by SBA under the same terms, conditions, and processes as First Draw PPP Loans, including forgiveness of up to the full principal amount of loan and any accrued interest.

All PPP Loans are subject to the SBA’s revised Interim Final Rule on the Paycheck Protection Program that was issued on 1/6/2021. Second Draw PPP Loans are subject to the new Interim Final Rule on Second Draw Loans (also issued on 1/6/2021). On 1/8/2021, the SBA also released a revised PPP Borrower Application Form and a new Second Draw Borrower Application Form.

The detailed terms and key differences between the First Draw PPP Loan Program and Second Draw PPP Loan Program are described in the table below.

KROST is providing a service to assist borrowers with applications for Second Draw PPP Loans. In addition, we will assist entities that did not previously receive a PPP loan with applications for First Draw loans. For more information, please contact us at [email protected].

PPP First Draw Loan PPP Second Draw Loan
Eligible Entities
  • Was in operation on February 15, 20201
  • Small business concern under the applicable revenue-based size standard established by SBA
  • C-Corp, S-Corp, LLC or Partnership
  • Independent contractor, self-employed individual, or sole proprietor
  • 501(c)(3) non-profit, 501(c)(19) veterans’ organization, or 501(c)(6) organization2
  • Tribal business concern described in section 31(b)(2)(C) of the Small Business Act
  • A news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS code 511110 or 5151 2
  • Eligible entities (that meet other eligibility requirements) include hospitals owned by government entities, businesses that receive revenue from legal gaming, electric, telephone and housing cooperatives, and destination marketing organizations 3
  • SBA affiliation (common ownership or common management) rules apply, but there are exceptions – see below
  • Has no more than 5004 employees
  • • Any business concern that has more than one physical location and that employs not more than 500 employees per physical location is eligible if it is assigned a NAICS code beginning with 725

    • Any business concern, or any station which broadcasts pursuant to a license granted by FCC, that has more than one physical location and that employs not more than 500 employees per physical location is eligible if (i) it is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151 and (ii) it makes a good faith certification that proceeds of the loan will be used to support expenses at the component of the organization that produces or distributes locally focused or emergency information

  • Has no more than 3004 employees except:
  • • Any business concern that has more than one physical location and that employs not more than 300 employees per physical location is eligible if it is assigned a NAICS code beginning with 72

    • Any business concern, or any station which broadcasts pursuant to a license granted by FCC, that has more than one physical location and that employs not more than 300 employees per physical location is eligible if (i) it is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151 and (ii) it makes a good faith certification that proceeds of the loan will be used to support expenses at the component of the organization that produces or distributes locally focused or emergency information

  • Previously received a First Draw PPP loan
  • Has used, or will use, the full amount of its First Draw PPP Loan (including the amount of any increase on such loan)
  • Had gross receipts during the first, second, third, or fourth quarter in 2020 that demonstrate at least a 25% reduction from the applicant’s gross receipts during the same quarter in 20196
  • Definition of Gross Receipts (Applicable to Second Draw Loans Only)
  • Gross receipts include all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
  • The amount of any forgiven First Draw PPP Loan shall not be included toward any borrower’s gross receipts
  • Also excludes net capital gains or losses, taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker
  • May not exclude subcontractor costs, reimbursements for purchases a contractor makes at a customer’s request, investment income, and employee-based costs such as payroll taxes
  • Gross receipts of a borrower with affiliates is calculated by adding the gross receipts of the business concern with the gross receipts of each affiliate
  • Affiliation Rule Exceptions
  • Business concern, with not more than 500 employees, that, is assigned a NAICS code beginning with 72
  • Business concern operating as a franchise that is assigned a franchise identifier code by the SBA
  • Business concern that receives financial assistance from an SBIC
  • Business concern (including any station which broadcasts pursuant to a license granted by the FCC) that employs not more than 500 employees per physical location and is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151
  • Nonprofit organization that is assigned a NAICS code beginning with 5151
  • Faith based organizations
  • Employee Stock Ownership Plans (ESOPs)
  • Eligibility for Second Draw PPP Loans is governed by the same affiliation rules (and waivers) as First Draw PPP Loans, except amended as follows:

  • Business concern with not more than 300 employees that is assigned a NAICS code beginning with 72
  • Business concern (including any station which broadcasts pursuant to a license granted by the FCC) that employs not more than 300 employees, per physical location of such business concern and is majority owned or controlled by a business concern that is assigned a NAICS code beginning with 511110 or 5151
  • Ineligible Entities
  • Was not in operation on February 15, 202011
  • Publicly traded, i.e., an issuer of securities listed on an exchange registered as a national securities exchange under section 6 of the Securities Exchange Act of 1934
  • Applicant or the owner of the applicant is the debtor in a bankruptcy proceeding
  • Engaged in any activity that is illegal under Federal, state, or local law
  • Is a household employer (i.e. individuals who employ household employees such as nannies or housekeepers)
  • Businesses that are generally ineligible for 7(a) loans under 13 CFR 120.110 (except for businesses described in paragraphs (a), (g), and (k))
  • Has an owner, of 20% or more of the equity of the applicant, who is a felon
  • Is owned, or controlled, by owners, who have, within the last seven years, defaulted, or are currently delinquent, on a loan from the SBA or any other Federal agency
  • Has received or will receive a grant under the Shuttered Venue Operator Grant program under section 324 of the Economic Aid Act
  • Is an entity in which the President, the Vice President, the head of an Executive Department, or a Member of Congress, or the spouse of such person as determined under applicable common law, directly or indirectly holds a controlling interest in the business
  • Is excluded from eligibility under the First Draw PPP loan program, or

  • Has previously received a Second Draw PPP Loan
  • Is permanently closed
  • Is primarily engaged in political activities or lobbying activities, as defined in section 3 of the Lobbying Disclosure Act of 1995
  • Has 20% or more economic interest in an entity created in, or organized under, the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or that has significant operations in the People’s Republic of China or Hong Kong
  • Retains, as a member of the board of directors of the business concern, a person who is a resident of the People’s Republic of China
  • Is any person required to submit a registration statement under section 2 of the Foreign Agents Registration Act of 1938
  • Loan Calculation
    Use the following calculation:

    1. Aggregate payroll costs from 2019 or 2020 for employees whose principal place of residence is the United States
    2. Subtract any compensation paid to an employee in excess of $100,000, on an annualized basis, as prorated for the period during which the payments are made or the obligation to make the payments is incurred
    3. Calculate average monthly payroll costs (divide the amount from Step 2 by 12)
    4. Multiply the average monthly payroll costs from Step 3 by 2.5

    Loan calculations for Second Draw Loans are the same as First Draw Loans except:

  • For borrower assigned a NAICS code beginning with 72, multiply the average monthly payroll costs by 3.5
  • Alternative period:

  • For a seasonal employer use the average total monthly payments for payroll costs incurred or paid in any 12-week period between February 15, 2019 and February 15, 2020
  • For a borrower that did not exist during the 1-year period preceding February 15, 2020, but was in operation on February 15, 2020, the loan amount is the product obtained by multiplying (i) the quotient obtained by dividing (a) the sum of the total monthly payments by the borrower for payroll costs paid or incurred by the borrower as of the date on which the borrower applies for the Second Draw PPP Loan; by (b) the number of months in which those payroll costs were paid or incurred (ii) by 2.5;
  • Alternative payroll costs:

  • For partnerships, compute 2019 or 2020 payroll (using the same year for all items) by adding (i) net earnings from self-employment of individual general partners in 2019 or 2020, as reported on IRS Form 1065 K-1, reduced by section 179 expense deduction claimed, unreimbursed partnership expenses claimed, and depletion claimed on oil and gas properties, multiplied by 0.9235,57 that is not more than $100,000 per partner; (ii) 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States, if any, which can be computed using 2019 or 2020 IRS Form 941 Taxable Medicare wages and tips (line 5c-column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages and tips, subtracting any amounts paid to any individual employee in excess of $100,000 and any amounts paid to any employee whose principal place of residence is outside the U.S; (iii) 2019 or 2020 employer contributions for employee group health, life, disability, vision and dental insurance, if any (portion of IRS Form 1065 line 19 attributable to those contributions); (iv) 2019 or 2020 employer contributions to employee retirement plans, if any (IRS Form 1065 line 18); and (v) 2019 or 2020 employer state and local taxes assessed on employee compensation, primarily state unemployment insurance tax (from state quarterly wage reporting forms), if any
  • For sole proprietors/independent contractors/self-employed, with no employees, use net profit reported on Schedule C of IRS Form 1040 (with a maximum of $100,000) for payroll costs
  • For farmers, with no employees, use the gross income of 2019 or 2020 shown on Schedule F of IRS Form 1040 (with a maximum of $100,000) for payroll costs
  • Payroll includes:

  • Compensation to employees (salary, wage, commission, or similar compensation, cash tip or equivalent)
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums
  • Retirement benefits
  • State or local tax assessed on the compensation of employees
  • Payroll excludes:

  • Any compensation of an employee whose principal place of residence is outside of the US
  • The compensation of an individual employee in excess of $100,000 on an annualized basis, as prorated for the period during which the payments are made, or the obligation to make the payments is incurred
  • Federal employment taxes imposed or withheld during the applicable period, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees
  • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
  • Maximum Amount of Loan
  • The maximum loan amount is $10 million
  • Businesses that are part of a single corporate group8 shall in no event receive more than $20,000,000 of PPP loans in the aggregate
  • The maximum loan amount is $2 million
  • Businesses that are part of a single corporate group shall in no event receive more than $4,000,000 of Second Draw PPP Loans in the aggregate
  • Covered Period
  • Any time between 8 weeks and 24 weeks beginning on the date the lender disburses the PPP
  • The SBA has eliminated the ‘alternative covered period’
  • Re-apply or Request for Increase in Loan (First Draw Loan Only)
  • If a partnership received a PPP loan that only included amounts necessary for payroll costs of the partnership’s employees and other eligible operating expenses, but did not include any amount for partner compensation, the borrower may request an increase in the PPP loan amount to include appropriate partner compensation (up to $100,000 per partner on an annualized basis), even if the loan has been fully disbursed and even if the lender’s first SBA Form 1502 report to SBA on the PPP loan has already been submitted. In no event can the increased loan amount exceed the maximum loan amount allowed under the PPP Program, which is $10 million for an individual borrower or $20 million for a corporate group
  • The following borrowers can also reapply or request an increase in their PPP loan amount:
  • (a) Seasonal employer that received a PPP loan before December 27, 2020 (with the revised calculation)
    (b) A borrower that returned all of a PPP loan may reapply for a PPP loan in an amount the borrower is eligible for under current PPP rules
    (c) A borrower that returned part of a PPP loan may reapply for an amount equal to the difference between the amount retained and the amount previously approved
    (d) A borrower that did not accept the full amount of a PPP loan for which it was approved, may request an increase in the amount of the PPP loan up to the amount previously approved

    Permitted Uses of Loan (Forgivable Expenses)
  • Payroll Costs (as defined above)9. At least 60 percent of the PPP loan proceeds shall be used for payroll costs 10
  • Costs related to the continuation of group health care, life, disability, vision, or dental benefits during periods of paid sick, medical, or family leave, and group health care, life, disability, vision, or dental insurance premiums
  • Mortgage interest payments (but not mortgage prepayments or principal payments)
  • Rent payments
  • Utility payments
  • Interest payments (but not principal) on any other debt obligations that were incurred before February 15, 2020
  • Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
  • Covered operations expenditures (payments for 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
  • Covered property damage costs (costs 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)
  • Covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—(a) are essential to the operations of the borrower 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
  • Covered worker protection expenditures Operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the HHS, CDC or OSHA, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to the COVID–19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
    Such expenditures may include:

    (i) the purchase, maintenance, or renovation of assets that create or expand:

    (a) a drive-through window facility
    (b) an indoor, outdoor, or combined air or air pressure ventilation or filtration system
    (c) a physical barrier such as a sneeze guard
    (d) an expansion of additional indoor, outdoor, or combined business space
    (e) an onsite or offsite health screening capability
    (f) other assets relating to the compliance with the requirements or guidance of the SBA

    (ii) the purchase of:

    (a) covered materials described in section 328.103(a) of title 44, Code of Federal Regulations, or any successor regulation
    (b) particulate filtering facepiece respirators approved by the National Institute for Occupational Safety and Health, including those approved only for emergency use authorization; or
    (c) other kinds of personal protective equipment, as determined by the SBA

    Such expenditures do not include residential real property or intangible property

  • Documentation Required for Application
  • The applicant must submit Paycheck Protection Program Borrower Application Form (SBA Form 2483), or lender’s equivalent form
  • Applicant’s Form 941 (or other tax forms containing similar information) and state quarterly wage unemployment insurance tax reporting forms from each quarter in 2019 or 2020 (whichever was used to calculate payroll), as applicable, or equivalent payroll processor records, along with evidence of any retirement and employee group health, life, disability, vision and dental insurance contributions, must be provided. A partnership must also include its IRS Form 1065 K-1s.
  • If the applicant is self-employed and does not have employees, the applicant must provide (a) its 2019 or 2020 (whichever was used to calculate loan amount) Form 1040 Schedule C, (b) a 2019 or 2020 (whichever was used to calculate loan amount) IRS Form 1099-MISC detailing nonemployee compensation received (box 7), invoice, bank statement, or book of record that establishes that the applicant is self-employed; and (c) a 2020 invoice, bank statement, or book of record to establish that the applicant was in operation on or around February 15, 2020
  • The applicant must submit to the lender SBA Form 2483-SD (Paycheck Protection Program Second Draw Borrower Application Form) or the lender’s equivalent form
  • Forms 941 or Form 1040 Schedule C as for First Draw loans, BUT no additional documentation required if:
  • • 2019 documentation was submitted to the lender for the First Draw PPP Loan and the applicant intends to use calendar year 2019 figures to determine its Second Draw PPP Loan amount, and

    • The lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan

  • For loans with a principal amount greater than $150,000, applicant must supply documentation sufficient to establish that the applicant experienced a reduction in revenue, which may include relevant annual tax forms, or, if relevant tax forms are not available, a copy of the applicant’s quarterly income statements or bank statements
  • For loans with a principal amount of $150,000 or less, the applicant does not need to provide documentation evidencing a reduction in revenue at the time of the application BUT must submit documentation evidencing a reduction in revenue when the borrower submits an application for loan forgiveness
  • Certifications
    On the PPP borrower application, an authorized representative of the applicant must make certain representations, authorizations, and certifications in good faith including:

  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant
  • Information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 U.S.C. 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 U.S.C. 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 U.S.C. 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000
  • Interest rate
  • 1% calculated on a non- compounding, non-adjustable basis (for the unforgiven portion of the loan)
  • Term of the loan
  • 5 years (for the unforgiven portion of the loan)
  • Loan Payment Due
  • If you submit to your lender a loan forgiveness application within 10 months after the end of your Covered Period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed)
  • If you do not submit to your lender a loan forgiveness application within 10 months after the end of your Covered Period, you must begin paying principal and interest after that period
  • Are collateral or personal guarantees required?
  • No

  • About the Author

    Paren Knadjian, Practice Leader

    Mergers & Acquisitions, Technology, PPP ForgivenessLos Angeles M&A - Los Angeles CPA
    Paren is the practice leader of the M&A and Capital Markets group at KROST. He comes with over 15 years of experience in mergers and acquisitions as well as equity and debt financings. In that time, Paren successfully completed over 50 transactions acting as both a buy-side and sell-side advisor, as well as a broker/dealer. » Full Bio


    1 Exceptions for seasonal businesses that where dormant or not fully operating as of February 15, 2020. A seasonal business is an employer that does not operate for more than 7 months in any calendar year, or that during the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of that year
    2 NAICS code 511110 – Newspaper Publishers, 5151 – Radio and Television Broadcasting
    3 If they do not receive more than 15% of its receipts from lobbying activities. Excludes professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity
    4 Including domestic and foreign affiliates
    5 NAICS code beginning with 72 – Accommodation and Food Services
    6 If the applicant was not in business during 2019, but was in operation on February 15, 2020, the applicant had gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25 percent reduction from the gross receipts of the entity during the first quarter of 2020
    7 Defined as a person presently incarcerated or, for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for, a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years or any other felony within the last year
    8 For purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent
    9 Payroll costs that are qualified wages that are used in determining the Employer Retention Credit are not eligible for loan forgiveness
    10 Individuals with income from self-employment who file a Form 1040, Schedule C, can use a PPP loan for owner compensation replacement, calculated based on 2019 or 2020 (using the same year that was used to calculate the loan amount) net profit

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