What’s the PPP2 and How Does It Work?
There’s a new PPP loan program, which was signed into law in December 2020 as part of the Consolidated Appropriations Act, 2021 (the CAA).
The eligibility requirements for this PPP2 Loan are as follows:
- The borrower must spend the full amount of the first PPP loan before receiving the PPP2 Loan.
- The borrower cannot employ more than 300 employees per physical location.
- The borrower must demonstrate a 25% or more reduction in gross receipts in a quarter during calendar year 2020 compared to the same quarter in 2019.
- The borrower must have been in business as of February 15, 2020.
Like the initial PPP loan, the size of a PPP2 Loan can be up to 2.5 times the average monthly payroll costs during the 1-year period before the loan or during the 2019 calendar year. If you’re in the hospitality or food services industry, you’re eligible for a loan of up to 3.5 times average monthly payroll costs. The amount of each PPP2 Loan is subject to an overall cap of $2 million.
We’re expecting the SBA to soon publish a new application form and guidance for PPP2 Loans. There’s a couple of options (at the borrower’s discretion) as to how to go about calculating the maximum amount of the loan and expanded covered expenses as part of the 40% of non-payroll costs. As was true of the original PPP loan, you must use at least 60% of PPP2 funds for payroll costs to be eligible for forgiveness.
One has the option of using an 8 or 24 week period as their “covered period”.
Lastly, there’s a “necessity requirement” that the SBA will use to determine eligibility. Essentially, this is a good-faith necessity certification based upon individual circumstances at the time of the loan application. It’s meant to provide eligible borrowers with PPP2 funds if the loan is necessary to support ongoing operations of the business. As you are completing this certification under penalty of perjury, you have to be confident that you can defend this necessity claim. If you repay the loan, the SBA won’t penalize you, but if you don’t repay, your risk could range from civil to criminal liability, depending upon the degree to which it might otherwise appear you’d exercised bad faith or misled the SBA.
To discuss whether you may be eligible for PPP2 funds and how to go about calculating forgiveness, please reach out to us!