News & Thought Leadership from Sulloway & Hollis

January 12, 2021

Second Draw PPP Loans: Another Bite at the Relief Apple

On December 21, 2020, Congress approved H.R. 133, also referred to as the Consolidated Appropriations Act, 2021. This Act, signed into law on the 27th of December, contained a small business relief section within the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“Hard Hit Act”). The Hard Hit Act included authorization for supplemental Paycheck Protection Program (PPP) loans, allowing for additional liquidity in the form of a second round loan. Over the next couple weeks, the Small Business Administration (“SBA”) is expected to release guidance that will address particulars for implementing this supplemental loan option

Who is eligible for the second draw PPP Loans?

To be eligible for a second draw PPP Loan, a business must have:

  1. 300 or less employees (unless subject to an exemption);
  2. Used or will use the full amount of their first PPP Loan; and
  3. At least a 25% reduction in gross receipts in any one quarter in 2020 relative to the same 2019 quarter.

Recent changes to eligible businesses for any PPP loan:

  • Newly added: housing cooperatives, destination marketing organizations, some 501(c)(6) organizations, and some individual stations, newspapers, and public broadcasting organizations.
  • Newly excluded: publicly traded companies, businesses that were not in operation on February 15, 2020, businesses that receive a shuttered venue operator grant, or any business where a “covered individual” holds a 20% or more interest in the business.

What is the maximum available second draw PPP Loan amount?

Generally, the second draw loans may be issued in an amount of up to 2.5 times a borrower’s average monthly payroll costs in the year prior to the loan or the 2019 calendar year. The loans are capped at $2 million.

Additionally, the Hard Hit Act outlines two other categories of business: new entities and businesses falling into the accommodation and food services industries assigned to NAICS code 72.

New entities are those that did not exist for the full term of 2/16/2019 to 2/15/2020. For new entities their maximum loan value is calculated as follows:

(Total monthly payroll payments as of the application date divided by the number of months payroll was paid) x 2.5 = loan value (no more than $2 million).

For example, a business that opened on July 1, 2020 and had a total monthly payroll amount of $675,000 on the date of their application, January 1, 2021 would be eligible for a loan in the amount of up to $281,250.00 (calculated as: ($675,000/6) x 2.5).

NAICS Code 72 businesses may receive loans of up to 3.5 times their average monthly payroll costs.

Is this loan eligible for forgiveness?

Yes, borrowers of a second draw loan are still eligible for forgiveness on payroll costs, in addition to covered mortgage, rent, and utility payments, operations expenditures[1], property damage costs[2], supplier costs[3], and worker protection expenditures[4] during the covered period.

Borrowers are still required to use a minimum 60% of the PPP Loan on eligible payroll costs and the additional forgivable covered expenses outlined above to receive full forgiveness.

What is the covered period for this loan forgiveness?

Borrowers can choose between an 8-week covered period and a 24-week covered period.

Why is the length of the “covered period” important?

The “covered period” length impacts the expenditures that could be in the borrower’s forgiveness calculation, along with the period for potential loan forgiveness reductions based on changes in full-time employee equivalents (FTEs) or wage reductions.

Do I use the same forgiveness application as the original PPP Loans?

Likely no. Updated forgiveness application, permitted borrowers the option of disclosing demographic information should be issued by the SBA by January 20th.

For borrowers with $150,000 or less in PPP loans, the SBA will also make a simplified forgiveness application available that will only require a borrower sign and attest a certification including the number of employees it was able to retain because of the PPP loan, the estimated total amount spent on payroll costs, and the total loan amount. It also has a lower record retention requirement for such loan recipients.

If you have any questions regarding the recent Hard Hit Act or your business’s relief options, the attorneys at Sulloway & Hollis are here to assist. Our Business Practice Group provides comprehensive counseling and legal services to employers across New England.

[1] Includes payments for software, cloud computing, and other human resources and accounting needs.

[2] Costs related to property damage due to public disturbances occurring in 2020 uncovered by insurance.

[3] Costs to a supplier due to a contract, purchase order, or order for goods in effect prior to taking out the loan that was essential to the borrower’s operations at the time the expenditure was made.

[4] Personal protective equipment and adaptive investments (e.g., drive-through window) to help a loan recipient comply with federal, state, and local health and safety guidelines related to COVID-19 from March 1, 2020 through the end of the declared national emergency.

For more information on the Hard Hit Act see our other articles on