Paycheck Protection Program: Second Draw Loan Information for Aging Services
Regulation | January 11, 2021 | by Brendan Flinn
The PPP loans are expected to reopen for second draw loan applications during the week of January 11. Organizations may recieve a forgivable loan of up to $2 million provided certain conditions are met.
A key part of the December 2020 COVID-19 relief bill is a renewal of the Paycheck Protection Program (PPP), including availability of second draw loans for certain organizations that got a PPP loan earlier this year. In January 2021, the Small Business Administration and the Department of Treasury issued rulemaking to implement the second draw loan program.
Organizations that received a PPP loan earlier this year are eligible to receive a second forgivable loan of up to $2 million if they meet certain eligibility criteria. The loan application portal is expected to open to aging services borrowers during the week of January 11.
There are a number of provisions in the bill relating to reopened applications for initial loans, and on loan forgiveness for loans issued earlier this year. This article focuses on the second draw loan provision; future LeadingAge resources will cover changes made to initial PPP loans.
The Paycheck Protection Program
As a refresher, PPP was first created in March 2020 as a forgivable loan program for small businesses and nonprofit organizations affected by the pandemic. Organizations with 500 employees or fewer were eligible to receive loans up to $10 million that were fully forgivable if certain conditions are met. The application window for these loans closed on August 8 and no such loan product has been available since then. The December 2020 bill allocated $284 billion for new PPP loans, both initial and second draw.
Second Draw Loans
Under the new relief package, organizations that already have a PPP loan can receive a second forgivable loan of up to $2 million.
Organizations, including not for profit aging services providers, are eligible for the loans if they have 300 employees or fewer, have or will use all of the initial PPP loan dollars, and can demonstrate a reduction in gross receipts from 2019 to 2020 of 25% or more. Organizations can demonstrate this either on a quarterly basis, specifically by comparing the same quarters of both years (e.g., Q3 2019 compared to Q3 2020) or by comparing gross receipts from the full calendar years of 2019 and 2020. For not for profit organizations, gross receipts should be calculated using the same method outlined in the IRS code for tax exempt organizations. The full definition of gross receipts from the rule is pasted at the end of this page as reference.
Loans can be made up to $2 million or the amount of 2.5 times an organization’s monthly payroll, whichever amount is lower. Payroll is calculated based on a 12 week period from February 15, 2019 to February 15, 2020.
Similar to the first round of loans, 60% of PPP dollars must be used for payroll costs to secure full forgiveness. The other 40% of loan funds has more flexibility than the initial loans. In addition to utility, rent and mortgage interest costs, funds can go toward operations costs, supplier costs, property damage expenses and worker protection costs (e.g., PPE).
What’s Next for Borrowers?
The PPP application portal reopened on a limited basis on January 11. The initial opening is reserved for “First Draw PPP loan applications from participating CFIs, which include Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs), and Microloan Intermediaries.”
We anticipate the portal will open this week to a broader base of lending institutions for initial loans, and for second draw loans generally. LeadingAge members interested in an initial or second draw loan are encouraged to reach out to their lender/banking partner for specific next steps. Lenders are reportedly already collecting application information in anticipation of the portal’s reopening.
You can find the second draw loan application form here, to help inform what information you will need to give to your lender.
What if I have questions?
Your specific lender is likely your best first stop for questions, as they likely have your information as well as their own process for handling loan applications. If you do not have a lender or they are not able to answer your questions, you can reach out to your LeadingAge state affiliate office or to Brendan Flinn (email@example.com) of the national office staff. LeadingAge Gold Partner CliftonLarsonAllen also has helpful articles on its website covering PPP updates and the second draw loans.
Definition of gross receipts, per SBA PPP Second Draw Loan regulation:
Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.