10 Things to Know about Second Draw PPP Loans as Updated for the Economic Aid Act

On January 6, 2021, the Small Business Administration (the “SBA”) and the Department of Treasury released an Interim Final Rule called “Business Loan Program Temporary Changes; Paycheck Protection Second Draw Loans” (“Second Draw Rules”). These rules announced the implementation of section 311 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Economic Aid Act”). The SBA also released an Interim Final Rule called “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended by Economic Aid Act” (“Consolidated First Draw PPP IFR”). That rule restates existing regulatory provisions into a single regulation on borrower eligibility, lender eligibility, and loan application or origination requirement issues for new First Draw PPP Loans, as well as general rules relating to First Draw PPP Loan increases and loan forgiveness. Both rules take effect immediately. For more information on the Consolidated First Draw PPP IFR, see our article  “What to Know about the Paycheck Protection Program, Round Two.”

On February 22, 2021, the Biden-Harris Administration and the SBA announced the taking of certain steps with the PPP to further promote equitable relief for smaller businesses. See “PPP: Changes by the Biden–Harris Administration” (February 23, 2021). On March 3, 2021, the SBA posted: (a) a revised Borrower Application Form and a revised Second Draw Borrower Application Form; (b) Borrower Application for Schedule C Filers Using Gross Income; (c) Second Draw Borrower Application Form for Schedule C Filers using Gross Income; (d) revised lender application form and a revised PPP second-draw lender application form; (e) Updated Frequently Asked Questions, including FAQ 57-63; and (e) Interim Final Rule on Loan Amount Calculating and Eligibility (“March 2021 IFR”). On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted and certain eligibility changes were made to the Second Draw PPP Loan program and an additional $7.25 billion was added for PPP Loans. On March 12, 2021, the SBA updated the Frequently Asked Questions (“FAQs”) and updated the documents on how to calculate maximum loan amounts. On March 18, 2021, the SBA posted an Interim Final Rule on Paycheck Protection Program as Amended by American Rescue Plan Act (“Eligibility IFR”) and posted updated borrower and lender application forms for First Draw and Second Draw PPP Loans. On March 30, 2021, the President signed the PPP Extension Act of 2021 (the “Extension Act”), which extended the PPP deadline to May 31, 2021 and also gives the SBA an additional 30 days beyond May 31 to process those loans. On April 6, 2021, the FAQs were further updated. This article includes those changes as they affect Second Draw PPP Loans. 

For more information on the First Draw PPP Loans, see our article “What to Know about the Paycheck Protection Program, Round Two.” For purposes of this article and the Second Draw Rules, first round Paycheck Protection Program (“PPP”) Loans are “First Draw PPP Loans” and second round loans are “Second Draw PPP Loans.” Since the issuance of the Second Draw Rules, the SBA in consultation with the Department of the Treasury has released further guidance and forms.

This article summarizes 10 key items relating to the Second Draw PPP Loans:

1. Deadline and Fund Availability
2. In General
3. Eligibility Requirements
4. Affiliation
5. Excluded Entities
6. Maximum Loan Amount; Payroll Cost Calculations, Use of Funds
7. Second Draw PPP Loan Application, Documentation Requirements, and Certifications
8. Safe Harbor for Certifications Concerning Need for a Second Draw PPP Loan
9. Loans to Borrowers with Unresolved First Draw PPP Loans
10. Loan Forgiveness

1. Deadline and Fund Availability and Some Lender Requirements:

Under the Extension Act, the last day for lenders to submit applications for Second Draw PPP Loans is May 31, 2021,…