The United States Small Business Administration (“SBA”) announced today that the Paycheck Protection Program (“PPP”) will reopen the week of January 11, 2021.
The SBA will be administering two different loan programs: First Draw Loans and Second Draw Loans.
Entities with no more than 500 employees can apply for a First Draw Loan in the event the entity did not participate in the first round of PPP or under other circumstances, such as if the entity did not receive loan forgiveness by December 27, 2020 and either returned some or all of its first PPP draw.
An entity which previously received a PPP loan is eligible for a Second Draw Loan in the event it has or will use the entirety of its prior loan only for authorized uses, has no more than 300 employees, and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. Based on an interim final rule issued by the SBA this week, gross receipts will be calculated in a manner consistent with the SBA’s existing regulations used to determine the size of small businesses. Most borrowers will be eligible for a loan in the amount of 2.5 times average monthly 2019 or 2020 payroll costs, although borrowers in the accommodation and food services sector (NAICS code 72) may borrow 3.5 times average monthly 2019 or 2020 payroll costs. The maximum amount of a Second Draw Loan is $2 million.
PPP loan proceeds can be used to pay payroll costs – including certain benefits, mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage caused by looting or vandalism during 2020, and certain other supplier costs and operations. To be eligible for forgiveness of a PPP loan, employee and compensation levels must be maintained in compliance with program requirements, loan proceeds must be spent on payroll costs and other eligible expenses, and at least 60 percent of the proceeds must be spent on payroll costs.
Eligible entities must apply for a first draw loan on or prior to March 31, 2021, but are encouraged to apply as soon as possible to avoid the risk of appropriations being exhausted.
Contact your Mika Meyers’ attorney with any questions.