As the COVID-19 pandemic remains a major obstacle to many small businesses, there is now another round of Paycheck Protection Program loan funding to assist struggling small businesses, including businesses who have already obtained a PPP loan last year.
On January 6, 2021, the SBA published interim final rule #27 (“IFR 27”) detailing the procedures for borrowers looking to obtain a second PPP loan, or “Second Draw PPP Loan.” The program structure is generally comparable to the original PPP Loan program with some differences. One of the differences between the original PPP loans and the Second Draw PPP Loan is that the maximum amount of the Second Draw PPP Loan is now capped at $2,000,000.
IFR 27 addresses the revised eligibility rules in order for Borrowers to obtain a Second Draw PPP Loan. While there are more specific details and requirements that need to be reviewed and addressed by Lenders and Borrowers, generally a party may obtain a Second Draw PPP Loan if they fall under the below categories:
- The party was eligible under the program requirements of the first wave of the PPP loan program; and
- The party received a PPP loan; and
- The party has used or will use the full amount of their original PPP loan on eligible expenses; and
- Employs not more than 300 employees; and
- The party experienced a revenue reduction of 25% or more in 2020 compared to 2019.
IFR 27 also clarifies a couple other specific examples of businesses that may have received a first PPP loan, but are not permitted to receive a Second Draw PPP Loan:
- If a Borrower received a PPP Loan despite having been ineligible, they are not permitted to receive a Second Draw PPP Loan based on the fact that they had erroneously received the first one.
- If an entity is now permanently closed, it is no longer permitted to receive a Second Draw PPP Loan. The program is designed for existing businesses to retain employees, so it does not meet the vision of the program if there is no business in operation. The program does however allow for an entity that has temporarily closed or suspended business to still receive a Second Draw PPP Loan.
As we have all seen throughout the PPP process and during the COVID-19 pandemic, circumstances, information, and guidance are constantly changing, so all participants in the PPP loan program must remain alert as updated information is released. This article only briefly discusses certain eligibility requirements set forth in IFR 27. Lenders must proceed with caution and review all applicable legislation, prior interim final rules, FAQs, and notices to ensure program compliance and eligibility for Second Draw PPP Loans. Stay tuned for additional updates as the program gets underway. For information on PPP loans, contact the attorneys at Starfield & Smith, PC at 215.542.7070.