On March 30, 2021, President Biden signed the PPP Extension Act, which extended the application deadline for the First or Second Draw PPP loans to May 31, 2021 from March 31, 2021. The SBA also extended the banks’ SBA submission deadline through June 30, 2021 to providing an extra 30 days to review applications. For companies that have not applied for a Second Draw PPP loan yet, there are a few new requirements in the process that need to be taken into consideration.
First & Second Draw Loans Differences
- To qualify for a Second Draw loan, Borrowers can employ up to 300 employees, down from the 500-employee maximum in First Draw. Borrowers who could qualify for First Draw loans using the Alternative Size Standard or other headcount based size standards may not use either of those methodologies to qualify for a Second Draw loan.
- To be eligible for a PPP2 Second Draw Loan the borrower needs to be able to demonstrate at least a 25 percent reduction in gross receipts in the first, second, third, or fourth calendar quarters of 2020 relative to the same 2019 calendar quarter.
- The main change for the current round of PPP1 and PPP2 loans is that borrowers are able to use payroll costs for 2019, 2020, or the most recent 12-month period before the date on which the loan is made to calculate the maximum loan amount.
Through our work with our clients, we have found several tips and tricks that will help with the forgiveness process.
Top 5 Loan Forgiveness Tips & Tricks
- If payroll costs are greater than the loan amount, then the borrower can use payroll costs only to reach full forgiveness. We recommend providing third party payroll registers, rather than bank statements, if available.
- SBA now allows borrowers to select a covered period between 8-weeks and 24-weeks. The per employee cap needs to be prorated based on the number of weeks used. For example, if a borrower selects a 10-week covered period then payroll costs per employee need to be limited to 10 weeks /52 weeks*$100,000 = $19,230.77
- SBA eliminated the Alternative Covered Payroll Period for all loans disbursed in the current round of funding. This was a point of confusion for both borrowers and banks.
- For the calculation of full-time equivalent employees (FTEs), the borrower needs to compare the average amount of FTEs per week used in the covered period against one of the two reference periods of:
- January 1, 2020 – February 29, 2020
- February 15, 2019 – June 30, 2019
- The borrower will be required to provide the Form 941s overlapping with whichever reference period is used.
- When considering loan forgiveness, if the borrower is also eligible for Employee Retention Credits the borrower is unable to use the same payroll costs for the Employee Retention Credit and the forgiveness for the Paycheck Protection Program Loan.
If you would like assistance with either your PPP first draw or second draw loan forgiveness application as well as your initial PPP application, we have a full team that has been focused on these projects since April 2020.
