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PPP 2.0: What your Organization Needs to Know About the Second Draw of the PPP

PPP Second Draw

PPP 2.0: What your Organization Needs to Know About the Second Draw of the PPP

By H. Robert Showers, Esq. and William R. Thetford, Esq.

 January 19, 2020

While many organizations await final forgiveness of their initial Paycheck Protection Program (PPP) loans, Congress recently approved an expansion of the PPP, the Consolidated Appropriations Act (CAA). The Act allocates $900 billion intended for COVID-19 relief, including $284 billion for a renewed PPP allowing more organizations to seek a PPP loan and allowing some organizations to receive a second draw of a PPP loan. What does your organization need to know about the changes to, and expansion of, the PPP under this new 2,124-page law?

Eligibility for New PPP Loan

Borrowers are eligible for a Second Draw PPP loan if the borrower satisfies three conditions:

  1. The full amount of the first draw PPP Loan has or will be used only for authorized purposes before the disbursal of the second draw PPP Loan. 
  1. The borrower has 300 employees or less (down from a 500-employee threshold in the first draw). 
  1. The borrower experienced a 25% reduction in gross receipts in at least one quarter in 2020. In other words: second, third, or fourth quarter 2020 gross receipts needs to be down 25% from that same quarter in 2019.

The maximum loan amount is calculated similarly to the first PPP draw: 2.5 multiplied by the average monthly payroll cost (with a cap of $100,000 annualized pay per employee). Borrowers in the hotel and restaurant industry may borrow up to 3.5 times their average monthly payroll costs. The second draw PPP loans are capped at $2 million.

Previous PPP borrowers will find simplified documentation requirements for the second draw if they go to their lender from the first draw. Forgiveness still requires that 60% of funds be applied to eligible payroll expenses and the remaining 40% be allocated to other eligible expenses.

Word of Warning. While the second draw of the PPP appears to be directly tied to existing, and now clarified PPP regulations, we are concerned about the explicit protections for the religious liberty of faith-based organizations and churches. The original PPP coincided with a groundswell of support to ensure that the PPP would be fairly distributed to religious and non-religious organizations. There has not been the same emphasis in this round. Even though the original documents should apply to this second draw in theory, we fear that in practice, with a change of administration and the history of evolving regulations with the first PPP, the priorities and practices will change in this second iteration of the program. We caution religious organizations to be aware of this risk if they consider pursuing a second draw PPP loan or original PPP loan at this time.

Changes to the Existing PPP

The CAA made a number of other changes to the PPP that apply both prospectively to potential recipients, and retroactively to those who already have PPP loans.

Expenses eligible to be covered by PPP funds are expanded to include facility modification expenditures (such as plexiglass barriers) and personal protective equipment; property damage from vandalism or looting, not covered by insurance, during disturbances in 2020; certain expenditures to suppliers essential to recipient’s continued operation; and other items.

Forgiveness is also going to be simplified for loans of $150,000 or less (in either PPP loan draw). We expect a simplified 1-page loan forgiveness application form to arrive sometime in late January or early February.

As we noted in previous articles on the PPP, there was some confusion as to how the Economic Injury Disaster Loan (EIDL) advance grants worked together with the original PPP. Eventually, it became clear that the regulations required entities receiving PPP forgiveness to essentially repay the EIDL grant (the grant was subtracted from amount of PPP forgiven). The CAA has altered this scenario: now the EIDL grant no longer needs to be counted against PPP forgiveness. You may need to reach out to your lender if you returned your EIDL in connection with forgiveness.

If you have questions on eligibility for these COVID benefits, implementation of various COVID employment requirements, or other legal questions, we are happy to help. We especially recommend that you get a knowledgeable professional review your PPP forgiveness application before you apply. If you are audited or if you have religious liberty concerns, please do not hesitate to contact Simms Showers.

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Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum.  Please contact Robert Showers at hrs@simmsshowerslaw.com or Will Thetford at wrt@simmsshowerslaw.com for legal advice that will meet your specific needs.

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