Paycheck Protection Program (“PPP”) First and Second Draw Applications and Timing

PPP 2021

By Alan R. Sasserath, CPA, MS and George Batas

It is tough for us to believe we are writing about new PPP Loans again, but here we are.

 

First some housekeeping, there are two types of PPP loans referenced in the latest guidance. “First Draw” PPP loans refer to the borrower’s first application whether received in the initial funding in 2020 or now, in 2021. “Second Draw” PPP loans refer to the borrowers that already received and spent the First Draw PPP loans. Requests for increases in a First Draw PPP loan would fall in the First Draw PPP loan application pool and are permitted in certain instances.

 

The SBA will open its portal to accept First Draw PPP loan applications from community banks today. On Wednesday, January 13th, the SBA will open its portal to accept Second Draw PPP loan applications. The SBA will open its portal to all banks shortly.

 

The current First and Second Draw PPP loan applications are linked below.

 

Eligibility requirements for the First Draw PPP loans have not changed. The requirements, in general, continue to be eligible small entities that have 500 employees or less or meet the alternative size standards.

 

In general, eligibility requirements for the Second Draw PPP loans are entities that:
  1. previously received and used a First Draw PPP loan on qualified expenses prior to the disbursement of the Second Draw PPP loan;
  2. are eligible small entities that have 300 employees or less; and
  3. can demonstrate at least a 25% reduction in gross receipts between the same quarter in 2019 and 2020.

 

If you think you are eligible for a First or Second Draw PPP loan, you should be in contact with your bank and financial advisors to assist you with the process. If you went through the process with a First Draw PPP loan, you should be reaching out to whomever you worked with on that.

 

We strongly suggest that you reach out to your advisors regarding this as soon as possible. While the applications are straightforward as they were the first time, there are always nuances. An example of one such nuance pertains to entities that are planning to use supplier costs to assist with PPP loan forgiveness. Under the latest guidance, an entity is permitted to use the cost of supplies that are essential to the operations of the entity at the time at which the expenditure is made when such expenditure is made pursuant to a contract, order, or purchase order in effect at any time before the covered period (the date that you received the First or Second Draw loan) with respect to the PPP loan. Our point is that you want your contracts, orders, and purchase orders to be in place prior to receiving the First or Second Draw PPP funds so you can use the related expenditures that occur in the 8-week to 24-week period following funding to assist with PPP loan forgiveness. If the contracts, orders, and purchase orders are not in place at the time funds are received, then such expenditures cannot be used unless an exception is met.

 

As always, we are here to help. If we can assist you in any way, please feel free to contact us.